UK government bonds rebound as high inflation still fails to change interest rate cut expectations

Jin10 data reported on August 20, the UK government bonds experienced a strong Rebound on Wednesday, with the 10-year yield ending a consecutive four-day rise. The yield is heading towards the largest fall in a month. The inflation report has had almost no impact on this year’s rate cut expectations, but bets for further cuts next year have increased. Swap contracts currently imply about a 75% probability of reducing the interest rate to 3.5% by the end of next year, which partially explains the movement of UK government bonds. Macro strategist Conor Cooper stated: “Many still believe that regardless of inflation, the UK Central Bank will ultimately lower the interest rate below 3.75%. If the UK Central Bank is forced to maintain tightening in the short term to ensure inflation is controlled, then the already troubled economy will face greater pressure, ultimately requiring a faster pace of rate cuts than previously anticipated once inflation stabilizes. This is Favourable Information for UK government bonds and may also be a factor that traders will consider when interpreting UK inflation data in the coming months.”