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Monday 13th January ...
Monday 13th January

The ten year gilt yield fell 0.05% last week to 7.64, returning a modest 0.3%. The market had performed very well in the first half of the week, but was dragged down on Friday by a sharp decline in US bond prices.

Investors around the world were concerned about very strong US employment and earnings data published on Friday, because of the likelihood that this will prompt a monetary tightening in the States.

The US economy is now well into its sixth year of expansion and cannot grow much further without igniting inflation and higher interest rates.

The UK gilt market also risks a home grown sell-off this week, with the publication of a number of important economic data releases including employment, retail price inflation, (RPI), and the public sector borrowing requirement.

The number of people unemployed (published on Wednesday) has fallen quite significantly in the last few months, which is good for workers but bad for the gilt market which fears an acceleration in wages and inflation as a result.

The official RPI data (published on Thursday) has been quite disappointing recently with the targeted rate (ex mortgage interest payments) currently 0.8% above the top end of the government's 1-2.5% target.

In addition, the Chancellor of the Exchequer and the Governor of the Bank of England meet on Wednesday to discuss UK monetary policy, and there is a chance that Kenneth Clarke will listen to Eddie George and raise interest rates, perhaps for the last time before the election.

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