At the MPC’s December, November and October meetings there was [...]]]> The Bank of England’s Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures.
Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC’s December, November and October meetings there was a three way split among its nine members.

In those meetings, one member voted for a rate rise and conversely another for more QE.

However, most MPC members continue to favour keeping rates on hold to aid the UK’s economic recovery.

The most recent official figures showed that the economy grew by 0.7% in the July-to-September period, but a number of independent estimates have since said that the rate of expansion has slowed.

However, the latest official data showed that Consumer Prices Index (CPI) inflation rose to 3.3% in November, well above the target rate of 2%, led by food and furniture prices.

So the Bank faces a difficult choice – either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation.

The Bank’s key interest rate has been at 0.5% since March 2009.

In each of the last three monthly MPC meetings, Andrew Sentance has called for rates to rise in order to cool inflation, while his colleague Adam Posen has voted for QE to be expanded.

The CPI inflation rate has now remained above the government’s 2% target by one percentage point or more for 12 months. Premature interest rate increases, while fiscal policy is still being tightened, risk derailing the recover

At the MPC’s November and October meetings, there was a [...]]]> The Bank of England’s Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing (QE) measures.
Both decisions were expected, but it will not be clear whether they were unanimous until the minutes of the meeting are released.

At the MPC’s November and October meetings, there was a three-way split among its nine members.

In those meetings, one member voted for a rate rise, another for more QE.

However, most MPC members continue to favour keeping rates on hold to aid the UK’s economic recovery.

This comes ahead of VAT rising to 20% from 17.5% on 1 January, and the possible negative economic impact of the government’s spending cuts.

Since June, MPC member Andrew Sentance has been voting in favour of raising interest rates from 0.5% to 0.75%.

Meanwhile, at the MPC’s meetings in October and November, Adam Posen voted in favour of £50bn of extra QE.

QE involves the Bank printing new money into the financial system in an attempt to stimulate the economy and inflation.

Recent official UK economic data showed that manufacturing output grew by 0.6% in October, the fastest pace since March with the overall UK economy growing by 0.8% between July and September.

The scale of the drop took most – if not all – [...]]]> Last week the International Monetary Fund (IMF) warned that there was a risk of a double dip in Britain’s housing market. Within 24 hours, the Halifax reported that uk house prices had dropped by 3.6% last month, the biggest one month fall on record.

The scale of the drop took most – if not all – City analysts by surprise. Although recent months have seen a marked slowing in housing market activity, prices have edged only slightly lower.

But, as the IMF noted in its World Economic Outlook, house prices in Britain still look expensive.

Despite the stamp duty exemption for homes worth less than £250,000, it is still difficult for first time buyers when lenders are demanding twenty five per cent deposits.

Traditionally, a lack of first-time buyers has been the catalyst for prices to fall to a level where they are more affordable. The reason they haven’t, at least up until now, may have something to do with the policy of “pretend and extend” adopted by lenders.

Insiders say the thinking goes like this. Imagine you are a bank that has 10 mortgages on houses from the same street, each of them valued on the books at £100,000. One of the mortgage payers is in arrears. As a bank, you have the choice of repossessing the house but you know if you do so it will probably fetch only £80,000 when resold.

The problem for the lender is not just that it makes a £20,000 loss on one home but that the book value of every other house in the street also has to be adjusted.

In one go, the bank’s assets have been reduced by £200,000. In these difficult times, no bank wants to destroy the asset side of its balance sheet.

As a result, lenders have gone easy on borrowers in difficulties, giving them more time to pay and turning a blind eye when they fail to meet their monthly payments in full.

This is the “extend” part of the equation, and has resulted in a much smaller number of repossessions than during previous downturns. By keeping people in their homes, lenders have prevented house prices from falling, thus retaining their theoretical book value. That’s the “pretend” part.

The problem is that “pretend and extend” only works for so long.

Some people still need to move, while others will be so financially hard-pressed that they will face foreclosure. The lack of first-time buyers eventually has an impact. That, simply, is why there will be further falls in house prices, and why the weakening market will trigger a policy response.

The Bank of England left policy on hold last week, but an extension of the quantitative easing programme now looks far more likely over the coming months.

The Council of Mortgage Lenders (CML) said that unemployment had not been as bad as had been feared. Many workers had proved to be flexible, accepting pay cuts and part-time work.

As [...]]]> UK unemployment figures published on Wednesday showed that the number of people unemployed in the UK had fallen again, leaving the jobless rate at 7.8%.

The Council of Mortgage Lenders (CML) said that unemployment had not been as bad as had been feared. Many workers had proved to be flexible, accepting pay cuts and part-time work.

As a result – with interest rates low – borrowers have managed to keep up with their monthly mortgage payments, which has kept a lid on arrears and repossessions.

However, the CML said new lending was still expected to be limited in 2010 as banks rebuilt their finances. This was likely to mean limited mortgage availability for more “risky” borrowers, such as those without a large deposit and first-time buyers.

However, the Bank of England’s Trends in Lending report, published at the same time as the CML figures, found that prices had dropped for those who could get a mortgage and who offered a significant deposit.

“In recent months, the major UK lenders reported some downward pressure on mortgage pricing due to increasing competition to lend,” the Bank of England report said.

The general election is also likely to have an effect on the housing market.

The election is going to play on the minds of many prospective buyers and those people who are in a position to buy and would probably buy now if there was not a general election just around the corner, may well hold off making a decision until early summer.

The Bank of England report said that demand for other forms of lending, such as personal loans and credit cards, remained subdued as people looked to reduce their unsecured borrowing.

Interest rates on this lending remained high compared with the Bank rate as there was a heightened risk of people defaulting, the report said.

The Bank has kept interest rates at a record low of 0.5% – despite rising inflation.

The Bank of England’s Monetary Policy Committee (MPC) agreed unanimously that interest rates should stay at 0.5% this month, minutes of the meeting show. All nine members voted [...]]]> The Bank of England has been unanimous on keeping interest rate rises on hold.

The Bank has kept interest rates at a record low of 0.5% – despite rising inflation.

The Bank of England’s Monetary Policy Committee (MPC) agreed unanimously that interest rates should stay at 0.5% this month, minutes of the meeting show.

All nine members voted for no change, even though inflation is currently at 3.5%, well above the 2% labour govt target.

However, some MPC members noted that the weakening of the pound could lead to inflation risks.

The MPC was unanimous in keeping the £200bn quantitative easing (QE) programme unchanged.

Under QE, the Bank pumped new money into the economy by buying assets, such as government bonds, in an attempt to boost lending by commercial banks.

The jump in CPI inflation to 3.5% in January was viewed as being caused by temporary factors, including the return of VAT to 17.5%.

The notes of the meeting said inflation was set to remain above the 2% target for some months to come, and that there were certain risks from the weak pound, which has now fallen in value by 25% since 2007.

The decision was widely expected by economists, who believe that any rise in the cost of borrowing could damage the UK’s fragile economic recovery.

Also as expected, the bank has not pumped any more money into the economy [...]]]> The Bank of England has kept interest rates at a record low of 0.5% for the 12th consecutive month.

The decision was widely expected by economists, who believe that any rise in the cost of borrowing could damage the UK’s fragile economic recovery.

Also as expected, the bank has not pumped any more money into the economy under its quantitative easing (QE) programme – for now at least.

Last month the Bank halted QE, having spent £200bn to boost the economy.

Under QE, the Bank has bought assets in order to boost lending to businesses and individuals by commercial banks.

But the Bank has said that the full effects of QE will take more time to filter through to the economy.

Many analysts argue that banks have not in fact increased lending as the economy begins to recover. Banks in turn argue that businesses are looking to pay down debt rather than take out new loans.

The Bank must also be wary of the inflationary pressure caused by QE.

The latest inflation figures, released last month, showed prices rising by 3.5% in January, the fastest annual pace for 14 months. This compares with 2.9% the previous month.

As a result, the Bank’s governor, Mervyn King, had to write a letter to the chancellor explaining why prices were rising so quickly.

A letter from the governor is required if inflation is more than one percentage point above or below the government’s 2% target.

However, Mr King said that the rise in inflation was temporary, and was largely the result of the rise in VAT to 17.5% in January.

However, other government bonds, such as the 10-year gilt, were under pressure following comments about stimulus measures from Andrew Sentance, who sits on the Bank’s Monetary Policy Committee.

In a newspaper interview, Mr Sentance said policymakers [...]]]> There was limited demand for the £2.25bn worth of long dated gilts sold by the Debt Management Office last week.

However, other government bonds, such as the 10-year gilt, were under pressure following comments about stimulus measures from Andrew Sentance, who sits on the Bank’s Monetary Policy Committee.

In a newspaper interview, Mr Sentance said policymakers were nearing the point where they would want to pause Quantitative Easing (QE) and wait to gauge its impact on the economy.

The central bank’s £200bn (QE) programme is due to come to an end just before the Bank of England’s policy meeting in early February.

Minutes from the meeting also showed that the MPC was unanimous in voting to maintain the £200bn quantitative easing (QE), or asset buying, programme.

The MPC agreed that the medium term outlook for inflation had [...]]]> All nine members of the Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates unchanged at its December meeting.

Minutes from the meeting also showed that the MPC was unanimous in voting to maintain the £200bn quantitative easing (QE), or asset buying, programme.

The MPC agreed that the medium term outlook for inflation had not changed since its November inflation report.

In November, the committee extended its existing £175bn QE programme by £25bn. That decision, however, had been split.

Seven members voted for a £25bn expansion, while chief economist Spencer Dale favoured no expansion and David Miles wanted a £40bn increase.

The December minutes said that the two still thought “a slightly different scale of asset purchases could still be justified”.

“But the lack of significant news on the month meant that the case for deviating from the programme of asset purchases announced in November was outweighed by the benefits of completing it as planned,” the minutes said.

The British Chambers of Commerce agreed that there was “no immediate need” to increase the size of the programme.

The increase comes despite billions of pounds of taxpayers’ money being pumped into Britain’s high street banks.

The effective rate on new mortgages – including variable and fixed rate deals – edged up by 0.1 percentage points to 4.3 per cent, it said.

It comes [...]]]> UK Mortgage rates have edged even higher, according to the Bank of England.

The increase comes despite billions of pounds of taxpayers’ money being pumped into Britain’s high street banks.

The effective rate on new mortgages – including variable and fixed rate deals – edged up by 0.1 percentage points to 4.3 per cent, it said.

It comes despite Bank of England interest rates remaining at a historic low of just 0.5 per cent.

Banks are facing louder calls than ever to lower their profit margins and offer lower borrowing costs to home buyers.

But lenders have defended the rate increases saying that they take into account the risk involved with lending to those with a small deposit.

Figures from the Council of Mortgage Lenders this week disclosed that mortgage lending rose just 2 per cent last month to £12.5 billion.

The MPC also voted to make no change to the pace at which it is pumping cash into the economy through its quantitative easing (QE) programme — retaining the size of the programme at [...]]]> The Bank of England’s Monetary Policy Committee voted yesterday to hold interest rates at 0.5 per cent for the sixth month running.

The MPC also voted to make no change to the pace at which it is pumping cash into the economy through its quantitative easing (QE) programme — retaining the size of the programme at £175 billion.

It said that it expected the programme would take another two months to complete.

In its statement, the MPC said: “The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 per cent.

“The Committee also voted to continue with its programme of asset purchases totalling £175 billion financed by the issuance of central bank reserves.

“The Committee expects the announced programme to take another two months to complete. The scale of the programme will be kept under review.”

The move had been widely anticipated by the markets, but sterling rose slightly against the dollar and the euro on foreign exchange markets immediately after the announcement, rising by 0.7 cents to $1.659 against the greenback.

The decision follows several indications that the economy may be returning to growth after five quarters of recession — including a recovery in manufacturing output, signs of a rally in the housing market and news that activity in the services sector is expanding again.

And it comes after the shock decision, at August’s policy meeting, to expand the Bank’s programme of asset purchases from £125 billion to £175 billion — although Mervyn King, the Bank Governor, and two other MPC members, David Miles and Tim Besley, had voted to expand the programme to £200 billion.

Details of yesterday’s vote will emerge with publication of minutes of today’s meeting on September 23.

The plan was mooted last month by Mervyn King, the Bank Governor, as part of efforts to encourage lenders to [...]]]> The Bank of England should carry out its threat to penalise high street lenders by cutting the interest it pays on cash held by them in its reserve accounts, The Times monetary policy committee (MPC) recommends.

The plan was mooted last month by Mervyn King, the Bank Governor, as part of efforts to encourage lenders to inject more money into the financial system.

Four of the nine member panel of economic experts on The Times MPC thought that the Bank should press ahead with the plan.

Professor Charles Goodhart, of the London School of Economics, the most fervent backer of the scheme, said that the cash balances “piled up at the Bank of England” were “socially useless” and that the Bank should impose a negative interest rate on money held by each bank in excess of 2 per cent of their total assets.

HSBC, Royal Bank of Scotland, Barclays, Lloyds and Northern Rock held a total of £157 billion in central bank reserves at June 30, up from £90.6 billion at the end of 2008.

Sushil Wadhwani, a former external member of the Bank’s MPC, Rupert Pennant-Rea, a former Deputy Governor of the Bank of England, and Sir Steve Robson, former Second Permanent Secretary at the Treasury, also lent their backing to the plan.

Otherwise the panel was united in its call for interest rates to be kept unchanged at 0.5 per cent, where they have remained for five consecutive months, and for the Bank’s drive to jump-start the economy with huge injections of newly printed money to be halted for now with burgeoning signs that the recession is coming to an end. 

Jean-Claude Trichet, the President of the ECB, said that it was too soon to end its support measures. Apart from reducing [...]]]> The European Central Bank (ECB) said yesterday that it was in no mood to withdraw the emergency measures it has been using to stimulate the eurozone economy in the face of the global financial crisis.

Jean-Claude Trichet, the President of the ECB, said that it was too soon to end its support measures. Apart from reducing interest rates, these have included pumping extra cash into the eurozone in an attempt to kick-start lending.

Speaking after the ECB voted to maintain interest rates in the eurozone at 1 per cent, Mr Trichet said the significant contraction in the 15-member zone had ended, but dismissed suggestions that the bank should now begin to unwind its support.

He added: “Today is not the time to exit. It is more of a bumpy road ahead. Uncertainty is high. Prudence and caution are still of the essence. Overall, the recovery is expected to be rather uneven.”

Mr Trichet confirmed that, later this month, the ECB would offer to lend unlimited funds to banks for the next year at a flat rate of 1 per cent. This is in line with the rate charged on the €442 billion (£384 billion) of 12-month funds that the ECB made available in June. The move defied predictions in some quarters that it might charge banks slightly more in a sign that monetary tightening was imminent.

His comments sent yields on the two year bonds issued by leading eurozone economies, such as Germany, to their lowest levels for six months.

The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline [...]]]> The IMF said that they expects the global economy to recover in the first half of next year despite worse-than-expected figures from the eurozone economy showing that GDP shrank by 2.5 per cent during the first quarter.

The quarterly fall in GDP in the eurozone– a key measure of economic health – takes the annual decline to a record of 4.6 per cent across the 16 countries that use the euro.

Germany revealed the worst fall in GDP, shrinking 3.8 per cent over three months in its worst performance since reunification in 1990. Economists had forecast German GDP would contract by 3 per cent.

However, the IMF’s Dominique Strauss-Kahn said that green shoots of revival are everywhere but he stressed that banks’ balance sheets must be cleansed before an economic recovery can take place.

While today’s figures are far worse than expected, economists said the quarter would prove to be a low point, with the slowdown set to ease in the coming months.

France, Europe’s second-biggest economy, reported that GDP shrank by 1.2 per cent on the quarter while Italy, the next biggest, fell 2.4 per cent.

Much of Germany’s contraction was due to a sharp decline in exports, which make up a large proportion of the country’s economy, and a drop off in investment. The dramatic plunge in output was the fourth quarter in a row that Germany’s economy has shrunk.

Moreover, officials said fourth quarter GDP, which was previously the worst on record, was revised down to a contraction of 2.2 per cent, compared with the previously reported decline of 2.1 per cent.

Germany is now expecting a 6 per cent contraction this year and is predicting growth of just 0.5 per cent in 2010.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The inflation report is the first since the introduction of QE in March and the report was eagerly awaited to assess the inflation projections in the UK. Mr King was downbeat in his assessment of the UK economy [...]]]> The UK’s Quarterly inflation report by the Bank Of England emphasising a slow and uncertain recovery.

The inflation report is the first since the introduction of QE in March and the report was eagerly awaited to assess the inflation projections in the UK. Mr King was downbeat in his assessment of the UK economy and emphasized the uncertainty in the economy stating “it would be extremely unwise for anyone to claim they know what the future is to hold” and he also intimated that there would be no end to credit easing and interest rates will remain low for the foreseeable future.

So not particularly cheery from Mr King and this certainly takes the shine off yesterdays “green shoot” declarations from various economic pundits for the UK- in fairness a conservative approach is sensible to avoid the market trading on sentiment rather than reality.

In other data from the UK we saw unemployment jump to its highest level since 1996 in a leaked report yesterday afternoon….the number of UK unemployed jumped by almost a quarter of a million in the first 3 months of the year taking the total levels to 2.2 million.

However manufacturing production fell by just 0.1% compared to expectations of a drop nearer to 1%- continued improvement in manufacturing production will be essential to drive growth and stop the rot of unemployment levels surging higher still…

Elsewhere, we saw China post a higher than forecast retail sales number but lower industrial output data….good news that the Chinese consumer is buying but they will hope to see an improvement in output soon. .

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

The European Central Bank is now following the policy first adopted by the Bank of England and America’s Federal Reserve

The European Central Bank has cut interest rates a quarter point to a record low [...]]]> Rearguard action by Germans to stave off ‘undesirable option’ dismissed by central bank’s governing council as ECB cuts loans rates to 1%.

The European Central Bank is now following the policy first adopted by the Bank of England and America’s Federal Reserve

The European Central Bank has cut interest rates a quarter point to a record low of 1pc and embraced quantitative easing (QE) for the first time, catching markets off guard with plans to buy €60bn (£53.5bn) of covered bonds.

The hotly disputed move to purchase assets brings the ECB into line with the central banks of the US, Britain, Japan, among others, that have begun “printing” money to stave off debt deflation.

This is likely to morph into fully-fledged quantitative easing. It’s how the Fed began last October when it started purchasing commercial paper.

The step-change in policy follows an open clash within the ECB’s governing council over its handling of Europe’s worst slump since World War Two, pitting national governors from southern Europe and Ireland against the ECB’s German-led hawks.

Bundesbank chief Axel Weber has fought a rearguard battle to head off QE, calling it an “undesirable option” that risked inflation later.

The majority also overruled his insistence on a 1pc “floor” for interest rates. Jean-Claude Trichet, the ECB’s president, said the bank had not ruled out further cuts, “depending on future circumstances”.

The refusal to accept Frankfurt’s lead is a turning-point for ECB, which inherited its authority a decade ago from the Bundesbank. The upsets touches on a raw nerve in Germany where critics have always suspected that EMU would turn “soft”. It may set off a political backlash.

Mr Trichet said covered bonds were picked because they have been hit hard by the crisis, but refused to rule out further assets later. The exact details are to be agreed at the ECB’s June meeting.

Covered bonds or “Pfandbriefe” form the AAA backbone of Europe’s mortgage markets. “They are a very safe asset, so this is the least controversial market,” said Mr Callow.

The ECB also extended its liquidity scheme from 6 to 12 months and opened its window to the European Investment Bank, giving it a new crisis role.

David Marsh, author of The Euro – The Politics of the New Global Currency, said the ECB is loath to follow Anglo-Saxon banks in purchasing government bonds because this would give most help to big debtors such as Greece and Italy. “They don’t want to be seen as bail-out merchants by acting as a bond purchaser of last resort for hard-pressed nations,” he said.

The ECB has been widely criticised for its slow response over recent months, although it has quietly let its overnight deposit rate fall to 0.25pc. “The ECB needs to get ahead of this like the Bank of England or we’ll face a Japanese scenario for the financial system,” said Marco Annunziata, economist at Unicredito.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

On the upside the FED [...]]]> The Fed stuck to their guns following the March announcement that they will still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn.

On the upside the FED noted that the “pace of contraction appears to be somewhat slower” which allies with the surprising surge in US consumer confidence and there was also signs that the market was beginning to repair itself outside of intervention.

Before we get carried away and start talking of an imminent recovery we must remember yesterday’s severe Q1 GDP data from the US which showed a whopping 6.1% contraction against a forecast of a 4.7% drop.

A similar theme in euro zone yesterday as we again saw improved confidence data against a downgrading of German GDP to -6.0% vs. -2.25% originally forecast.

In other news we saw an interest rate cut of 50 basis points in New Zealand to 2.50% after further weak data from their economy. The RBNZ anticipated that the “adverse economic forces generated by the crisis to remain dominant throughout 2009,” with the “timing and extent of recovery” remaining “highly uncertain.” So expect further weakness for the Kiwi dollar…

This morning we saw Nationwide House Prices resume their decline in April after rising unexpectedly in March. However the decline of 0.4% was less than expected and fuels optimism that a bottom is near…or is this another false dawn!

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

Global risk appetite had been whetted by strong earnings figures from US investment bank Goldman Sachs released on Monday, with sterling benefiting due to the UK economy’s perceived [...]]]> Sterling hit a five week high against the euro and rose against the dollar on Tuesday as the UK currency was bolstered by renewed demand for London-listed equities.

Global risk appetite had been whetted by strong earnings figures from US investment bank Goldman Sachs released on Monday, with sterling benefiting due to the UK economy’s perceived dependence on its banking sector.

The pound, viewed as a riskier currency than the dollar or yen, has tended to gain in tandem with stock markets and analysts at Commerzbank said that sterling should outperform in the currency markets as long as sentiment towards the financial sector continues to improve.

BNP Paribas however said that sterling’s robust performance against the dollar could be challenged if the forthcoming set of first quarter US corporate earnings delivers any shocks.

“Sterling will not be able to avoid the impact of any increase in asset market volatility over the coming week and hence caution with long positions is still required in the near-term,” BNP Paribas said.

“The pace of earnings releases picks up next week and still has the potential to deliver negative shocks. But the pessimism that has been built in to equity markets with many commentators now calling for new lows, is likely to cushion bearish news.”

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises [...]]]> It is only a few weeks since quantitative easing programmes were launched on both sides of the Atlantic – but already the effectiveness of the measures is being questioned.

That is because the purchase of government bonds by both the US Federal Reserve and the Bank of England is not helping sustain lower yields.

And it raises the prospect that the central banks will have to increase their fire power.

The Fed has bought more than $30bn of its planned $300bn purchases of Treasury debt since the programme began late last month. In that time, after a sharp initial drop, yields have moved higher, as hefty new supply from the US Treasury continues flowing.

“The Fed’s problem is that the market realises that $300bn in Treasury buy-backs is just a drop in the bucket compared to $2,500bn in net Treasury issuance this fiscal year,” says William O’Donnell, strategist at UBS. “It’s a $300bn thumb in a dyke springing leaks everywhere.”

After falling to 2.5 per cent from 3 per cent when the Fed confirmed it would start buying Treasuries, the yield on the 10 year note is currently back around 2.9 per cent. This week’s selling of stocks has helped lower yields, but the move has been muted for now.

If 10-year US yields rise above 3 per cent, it may negate some of the recent decline in 30-year fixed mortgage rates, which are at historic lows for US home owners.

In the UK, the effectiveness of quantitative easing is also in doubt, after a euphoric start to the programme that saw benchmark yields plunge.

Yields on 10-year UK bonds have risen by about 50 basis points from a low of 2.91 per cent after the Bank of England announced plans to buy up to £75bn ($110bn) of gilts on March 5.

The increase in yields is partly due to signs of risk appetite returning to the markets, which takes away a natural support for gilts and Treasuries. The recent rebound in equity markets, amid hopes of green shoots appearing in the economy, has also put pressure on government bond prices on both sides of the Atlantic.

The rise in Treasury yields has been accompanied by rising inflation expectations as investors worry that the Fed’s outright purchases of Treasuries and mortgages under quantitative easing will ultimately spark inflation.

The expected average inflation rate for the next 10 years recently touched a six-month peak of 1.5 per cent, up from 1.1 per cent last month. Such an inflation expectation, however, is very low and dealers say supply is the main issue for the Treasury market.

The Fed’s planned purchases in Treasury debt this year is a fraction of the overall $6,000bn in outstanding debt and expected hefty supply due in the coming months and years.

Over the next month, at least $200bn in net new issuance is forecast. It means that while the Fed comes in and buys an average of $12bn a week, the US Treasury will pump more supply into the market, pushing yields higher.

For dealers, competition between the Fed and the Treasury creates a favourable trading environment at a time when dealer ranks have been thinned and bid-offer spreads are wider than normal, enhancing profits.

Trading opportunities have also flourished in gilts as dealers report that most sellers to the Bank of England have been hedge funds or bank proprietary desks. Many of these groups have sold bonds at high prices to the Bank of England and then bought them back at lower prices to book quick profits, which has no impact on the economy.

That is preventing the Bank of England from driving yields on 10-year gilts down to 2.5 per cent, a level where so-called real money accounts, such as life insurance companies, are likely to sell. It is hoped that these funds will then buy sterling corporate bonds, lowering the funding costs for UK companies and helping to stimulate the wider economy.

The rise in UK gilt yields comes amid worries that the Bank of England is not as committed to quantitative easing as dealers first thought following comments by Mervyn King, the Bank’s governor, to a parliamentary committee that the programme could be eased should signs of inflation emerge. The Bank may make further comments on quantitative easing after its rate setting meeting today.

Loans Calculators Blog- loans rates blog for news about interest rates- unsecured and secured loans, mortgages, remortgages and refinancing including home loans, equity release and consolidate debt loans.

From the US we had several very interesting pieces of news – both good and not so good, but Wall Street ended focusing on the positive and the [...]]]> The G20 Conference in London stole the Press Inches but it was the yesterday’s economic and trading data plus financial announcements that provided the market with more interest.

From the US we had several very interesting pieces of news – both good and not so good, but Wall Street ended focusing on the positive and the DJIA closed on an up note, +2.01% higher.

On the positive, we had auto sales better than anticipated, probably supported by heavy discounting but good news nonetheless with numbers at both GM and Chrysler less negative than had been feared. We also had some positive news on the economic data front including a strong bounce in the ISM survey, although the ADP jobs number did come in marginally worse than had been predicted yesterday.

An indication of how slow the recovery of the US economy is going to be is the massive stock building of petroleum products as reported in yesterday Oil Inventory Data Release. The number is running at 4 times the 5-year average and indicates that OPECs best efforts to stabilise their market are not working.

More important for markets was an announcement from the US that the Fed would be buying Treasuries today and that the Treasury would not be issuing. This should leave longer term yields lower as QE begins to leave its mark but effects on currencies are more difficult to call.

With the ECB meeting scheduled for later today, this might very well leave Sterling as the Buyer’s choice (for today anyway) but the European Central Bank have been known to scupper the best laid plans before…..

Today, the main event will be the ECB meeting and the conference that follows. It is almost unanimous that rates will be cut by 50 basis points but the jury is still out as to what the press conference will contain.

The favoured view is that the ECB will give details of a Corporate Bond buying programme which would get its QE measures on the way. As mentioned above though, the ECB rarely miss the chance to disappoint and therefore a less market-friendly outcome is still a distinct possibility. The unknown is not a favoured position for market players hence the current Euro weakness on the exchange markets.

From the UK, other than anything from G20, the interest will surround the DMO’s (attempted) auction of £2.25 billion of 30-year gilts. This, remember, is outside of the BoE Reverse Auction buying range as was the 40-year auction that the DMO failed to fully get away last week.

Will they have learnt from the previous failed attempt? We will be told later…. Earlier this morning, the Nationwide revealed that house prices in March rose by 0.90% month-on-month versus a 1.90% fall in February, this, the first rise in the index since October 2007.

Loan Calculator suggest an aberration rather than a turning point.

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