By David Milliken
LONDON (Reuters) -Interest rate futures on Monday fully priced in a first quarter-point rate cut by the Bank of England for August and see at least two cuts before the end of the year, an earlier start to loosening than priced in last week.
Rate futures at 1451 GMT showed 28 basis points of cuts priced in by the BoE’s Aug. 1 meeting and 58 bps by Dec. 19, compared with Friday afternoon pricing of 17 bps and 42 bps.
Two-year gilt yields fell to a 10-day low of 4.331% at 1452 GMT, down 6 bps on the day and outperforming in price terms against German and U.S. government debt. Ten-year gilt yields were 3 bps lower at 4.206%.
Last week financial markets trimmed expectations for BoE rate cuts in response to slightly higher than expected British inflation and a shift in expectations for cuts by the U.S. Federal Reserve.
However, in remarks in Washington late on Friday, BoE Deputy Governor Dave Ramsden said he now viewed it as possible that British inflation was on track to fall to and then stay at its 2% target, unlike earlier BoE forecasts which saw a rise.
“We remain long fixed income in the UK and in Germany,” Mohit Kumar, Chief Economist Europe at U.S. investment bank Jefferies, said.
“Ramsden’s comments – usual stance neutral to slightly on the hawkish side – were on the dovish side. He also indicated that the April inflation data would show a sharp fall, in line with our views,” Kumar added.
(Reporting by David Milliken; editing by Sarah Young and William James)
