UK government bond yields rise as risk of no-deal Brexit recedes
British government bond yields rose on Monday due to the reduced risk of an economically damaging no-deal Brexit, after parliament forced Prime Minister Boris Johnson to write to the European Union to ask for a delay to Britain leaving the bloc.
Johnson still wants to take Britain out of the EU by Oct. 31, but following a parliamentary vote on Saturday he has had to ask the EU for a three-month delay, to take effect if he cannot pass necessary legislation before the end of the month.
Benchmark 10-year gilt yields rose 4 basis points to 0.75 percent on Monday, their highest level since Thursday when they hit a three-month high of 0.793 percent, as investors saw less need to hold safe-haven assets.
“Uncertainty is likely to keep gilts volatile, but with the chance of no-deal on 31 October further reduced and deal hopes still alive, the sell-off in gilts looks most likely to extend in the coming days,” Citi rates strategist Jamie Searle said.
Goldman Sachs said on Sunday that it thought the probability of a no-deal Brexit had fallen to 5 percent from 10 percent.
Johnson wants to hold another vote on his preferred Brexit deal later on Monday, but this may be blocked by the House of Commons’ speaker, who will make a statement on the proceedings shortly after parliament opens at 1330 GMT.
Short sterling interest rate futures for 2019 and 2020 edged around 1 tick lower, pointing to marginally reduced expectations of a Bank of England rate cut.
Another measure of interest rate expectations BOEWATCH showed around a 30 percent chance of a 25 basis-point rate cut before Governor Mark Carney is due to step down at the end of January, and a 55 percent chance of a move lower before the end of 2020.
Speaking in Washington late on Friday, before the UK parliamentary vote, Carney said that a Brexit deal would help the country’s economy but that “almost existential” worries about global trade wars might prevent the BoE from raising interest rates.