To keep the market busy will also be the monetary policy decisions coming out from the Bank of England and the Bank of Japan.
Before Wednesday’s BOE’s meeting, Boris Johnson unveils the United Kingdom's foreign and Defense policy, which would most likely see it diverge from the one of the European Union, especially for when it comes to China. Such a decision will align the country more closely to the United States.
However, in the bond market, the biggest focus will be on the central bank's approach to rising interest rates, which has been completely dismissed until now. Andrew Bailey said that the rise in yields is reflecting the optimism in the country's economy. On top of it, in a recent interview, the Bank’s financial stability chief Alex Brazier said that the quantitative easing program represents a potential risk to the U.K. economy.
If these are the hawkish stances that the BOE will maintain on Wednesday, we can expect yields to resume their rise towards 1% in 10-year Gilts. We are still of the idea that if yields rise too fast, such as they did since February, preceding an economic recovery, the BOE will have no other alternative than to intervene to slow them down. Although the U.K. economy is set to recover, financial conditions need to remain easy to avoid market turmoil.