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UK borrowing costs drop as central bank holds rates


The 10-year yield on U.K. government bonds, known as gilts, was down 13 bps at 4.366 per cent after the BoE announcement

U.K. government borrowing costs dropped sharply Thursday, continuing a pull-back from recent highs, after the BoE joined the US Fed in holding interest rates steady for a second consecutive month.

Bond prices — which move inversely to yields — soared as investors seemed to disregard comments from the central bank heads that further rate hikes are not off the table and that there is a long way to go to bring inflation to target.

The 10-year yield on U.K. government bonds, known as gilts, was down 13 bps at 4.366 per cent at 3:20 p.m. in London after the BoE announcement at midday. The 2-year yield, a reflection of interest rate expectations, was down 8 bps at 4.711 per cent.

Elsewhere in Europe, bond yields have also been slipping.

German 10-year bond yields dropped after the Fed decision and were down nearly 5 bps on Thursday, while Italy’s 10-year yield was down 9 bps.

The ECB held rates last week. ECB chief economist Philip Lane said Thursday there was a “good chance” the euro zone would avoid a recession in spite of risks from the credit market and after the economy contracted in the third quarter.

Global markets are taking their main cues from the Federal Reserve, as per analysts.

Fed Chair Jerome Powell’s “more-dovish-than-expected tilt at the FOMC press conference,” was one key reason behind dropping yields, as per Steve Englander, head of global G10 FX Research and North America macro strategy at Standard Chartered.

U.S. Treasury yields, which reached 16-year highs in October, were also sharply down Thursday as investors continued to digest the Fed comments.

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