UK and Japanese Bond Markets – What to Expect

The Bank of England increased rates by 25 bps to a total of 0.50%. After that, the natural decline of the balance began; Accordingly, it will actively start selling from its corporate bond portfolio. Four out of nine members voted in favor of the 50 bps MPC increase. Inflation should reach a peak of more than 7%; Against the previous 5%. If the BoE follows the path of the market policy rate, in 2023, prices will rise again by more than 2%.

Consequently, it will only return/go down to the target in 2024. The policy is necessary to curb inflation, which eats up UK revenues and affects growth. UK revenue rose to 11.5bps from 9.8. Markets moved forward with the next phase of the policy in anticipation of a 1% policy rate in May. This means that the BoE is starting to sell active government bonds.

EUR/GBP briefly hit support at 0.828 zones. There were no changes in the policy, though it was in tone. There are unanimous concerns about both inflation and growth risks. Some experts believe that the situation should be reassessed based on data. This will happen at the March meeting; When inflation forecasts will undoubtedly rise to 2% in the north. This will allow the net purchase to be completed more quickly and increase the interest rate at the end of the year. Eurozone money markets boosted tightening bets, and now the rate is expected to increase by more than 40 bps. German incomes grew similarly. European revenue gain 4.2-6.3 bps in the US.

Bond Markets

The euro rose and neglected capital sales in both the US and Europe. EUR/USD increased to 1,144. EUR/GBP closed above 0.84. EUR/JPY added up to 131.54. Japanese bond markets were inspired by the ECB this morning. Asian stocks are remarkably resilient in light of yesterday’s moves in the US and Europe. The German bank continues to perform fewer USTs. The euro is based on yesterday’s momentum. EUR/USD is also approaching the three-month high of 1.1456.

Currently, all eyes are on the Governor of the Bank of Japan, following yesterday’s dramatic press conference of the ECB. He should be the last person for ultra-simple monetary policy. This morning, he testified before parliament, stressing that Japan’s inflation is low, even except temporary factors. Yesterday, a BoJ member warned of premature tightening and is still pursuing mitigation options. Japan’s interest rates began to move in another direction.

The Food and Agriculture Organization of the United Nations Food Price Index rose 1.1% in January; Up to 135.7 in total. This complicates the peak of 2011. The monthly 4.2% increase in vegetable oils was a significant driver; Mostly due to supply constraints. The FAO is concerned that the impact of these restrictions will not be mitigated quickly. Dairy prices have also risen for the fifth month in a row. This is reduced access to exports from Western Europe and reduced production from the ocean. The grain index increased by 0.1%, as did the meat index. Constantly rising food prices indicate upward risks following inflation; Especially in developing countries.