Six Months Treasury Bills Auction in U.K Sees Highest Yield
A weekly auction of British government six-month Treasury bills – a form of short-term debt – saw the highest yield since April 2020 on Friday, against a backdrop of an expected rise in Bank of England interest rates.
The United Kingdom Debt Management Office sold 1 billion pounds or $1.38 billion of bills maturing on May 3, 2022, at an average yield of 0.216773%.
This was the highest yield at any weekly auction since April 9, 2020, when market conditions were choppy at the start of the COVID-19 pandemic. The yield at last week’s auction was just over 0.135%.
Yields at the one-month and three-month T-bill auctions remained near zero at 0.008790% and 0.018926% respectively. The Bank of England (BoE) will announce its next policy decision on Nov. 4, 2021.
Interest rate futures are pricing in a rise in Bank Rate to 0.25% from 0.1%, followed by another rise to 0.5% by February as the BoE seeks to keep inflation expectations in check.
Analysts think the central bank will prove more cautious, however, and wait for hard data on what has happened to unemployment after the end of the government’s furlough programme on Oct. 1.
“While the markets are now fully discounting a 15 basis-point hike in November, we think it would be prudent for the Bank to wait for the receipt of further information about the labour market,” Nomura economist George Buckley said.
Nomura expects a first rate rise in December, followed by three 25 basis-point increases in February, May and the second half of 2022, taking rates to 1% by the end of next year.
Demand for the six-month T-bills was strong too. Investors bid for 3.36 times the amount on offer, the highest amount since July 16’s auction, in anticipation of reduced supply in future.
On Wednesday the DMO cut its net T-bill issuance by 25 billion pounds for the rest of the financial year, which will drain 23.2 billion pounds of bills from the market as they mature.
This followed a big downward revision of borrowing needs in finance minister Rishi Sunak’s budget statement. #Six Months Treasury Bills Auction in U.K Sees Highest Yield
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