THE HEAT FIRMLY ON AT FED & BOE POLICY MEETINGS This week saw sharp fluctuations in bond markets. Shorter-dated yields have generally risen, and some in abrupt fashion, reflecting growing concerns about the scale of monetary tightening that central banks may soon enact. Evidence of rising inflationary pressures and hawkish comments, notably from the Bank of Canada, have further fuelled those concerns. Even countries or regions where policymakers have remained dovish, such as

EXPECTATIONS OF A NOVEMBER HIKE ‘FINELY BALANCED’ UK bond markets reacted to hawkish-sounding comments from BoE Governor Bailey in which he said that the Bank “will have to act” to curb inflation. Chief Economist Pill said that UK inflation could rise slightly above 5% early next year. Also, that next month’s policy decision is “live” and “finely balanced”. Short-dated gilt yields, which are sensitive to changes in official interest rate expectations, gapped higher, with the

TENREYRO AND MANN PUSH BACK Prospects of slower global economic growth momentum and more persistent high inflation remain at the forefront of investors’ minds, but the risk tone in financial markets improved this week. US Treasury yields fell despite further gains in the oil price, an upside surprise to US CPI inflation, and Fed minutes reaffirming the likely start of tapering of asset purchases this year. Sterling markets, meanwhile, have fully priced a 15bps rise in Bank Ra