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THOUGHTS ON THE GILT MARKET

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The UK gilt market continues to trade within a narrow range, with the 10 year yield currently at 7.8%. With very li...
The UK gilt market continues to trade within a narrow range, with the 10 year yield currently at 7.8%. With very little economic data due out this week gilts, like equities, will be concentrating on the UK and US monetary meetings being held today.

Gilt investors will react quite badly to any relaxation of domestic interest rate policy, suspecting (correctly) a politically motivated decision by the Chancellor of the Exchequer, Kenneth Clarke. Last week brought further evidence of an acceleration in high street sales and rising money supply growth, both factors indicative of higher inflation a year or so down the line. Lower interest rates will only increase this potential danger.

As for the US meeting on Tuesday, the gilt market will take its cue from the US Treasury bond market. US bonds could lose some value if rates are not raised. A tightening of US policy now would show the Federal Reserve Chairman, Alan Greenspan, is as serious about keeping price pressures at bay as he is about encouraging economic growth.
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