Investors reduce bets on BoE rate hike after coronavirus variant news

BY Reuters | ECONOMIC | 11/26/21 11:21 AM EST

LONDON, Nov 26 (Reuters) - Investors scaled back their bets on Friday on the chance of a Bank of England interest rate hike in December after a coronavirus variant that might be harder to combat with vaccines was detected in South Africa.

Interest rate futures were pricing a roughly 55% chance of a 15 basis-point rate hike by the BoE on Dec. 16 - after its next scheduled monetary policy meeting - compared with a roughly 75% chance on Thursday.

The BoE's new chief economist, Huw Pill, said he thought the way was clear for a first rise in rates since the start of the coronavirus pandemic. But he declined to send any signal about the likelihood of a move as soon as next month and he said there were still risks to public health.

Yields on 10-year British government bonds tumbled by 15 basis points, their biggest one-day fall since the onset of the financial crisis in March 2020, mirroring moves in U.S. Treasuries and other government bonds.

Yields on two-, five-, 20- and 30-year gilts fell by between 12 and 13 basis points.

The yield on Britain's 10-year inflation-linked gilt fell to a record low of -3.347%.

(Writing by William Schomberg; Editing by Kevin Liffey )

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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