Nicole Elliott – Technical analyst and private investor, joins Zak Mir and Mike Ingram in the studio to discuss the recent slump in bond yields, and why the MPC are playing a dangerous game with interest rates.
Final nail for the Bank of England?
After 8 months of rhetoric, it puts the MPC in perspective that only one member voted in favour of raising rates this coming September. As pointed out by Zak Mir, the markets are much better judge of where the rates should be set, and Elliott highlights the damage that mismanagement of the rates has had for investors.
UK gilts trend to lower yields
With the downward trend on gilts continuing, they’ve seen their 5th consecutive weekly slump. What Nicole Elliott called an “absolute plummet”, we’ve seen them retrace 61% of the backup as the secular trend is indicative towards lower yields.
Bond markets suggest rate hike won’t happen at all
For the US benchmark, the spread between the 10 and 2 yr rates (a key measure of future interest rate movements) is almost at its lowest point since 2008. Speculation over whether or not the Fed will hold steadfast in their plan to raise rates is proving to be irrelevant to bond prices.
The 2 year German benchmark, having gone from +28 basis points to -28 basis points, looks set to get into negative yield. Elliott believes this to be a warning that, not only is there no inflation, but inflation could even become negative in the near future, and if holding bonds at current levels remains a sensible option if inflation turns negative.