FX.co ★ UK Gilt Yields Ease From 19-Year Highs as Oil Rally Pauses

UK 10-year gilt yields trimmed earlier gains to trade just above 5.2% on Wednesday, after briefly touching their highest level since August 2007, as the recent oil rally stalled and investors assessed Prime Minister Andy Burnham’s address to the House of Commons. Brent crude halted a two-session advance that had pushed prices to a six-week high, with traders balancing persistent Middle East supply risks against evidence that crude continues to reach the market. At the same time, Burnham reaffirmed the government’s commitment to fiscal discipline and debt reduction, noting that bringing the budget date forward was intended to curb market speculation. Investors still expect a 25 bp Bank of England rate increase by year-end, with those expectations supported by a renewed pickup in UK shop-price inflation. In the US, futures markets are assigning a 66% probability to a September rate hike following hawkish comments from Fed Chair Kevin Warsh and this week’s rise in oil prices.