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UK unemployment rate reached its lowest level since 1975

19 September 2017

While bond yields have pushed down from early July to last week, we saw the yields rise sharply this week : +13bps for US 10 years, +10bps for German bunds and especially +24bps for British gilts.

  • British news flow was quite busy : unemployment rate came out at a lowest point since 1975 at 4.3%. More of the same with the inflation, which beats expectations at 2.9%. British yield curve moved dramatically when BOE changed radically its stance. While it had remained so far very accommodative, the Bank is now hawkish, and we even heard Gertjan Vlieghe, its most dovish member, say : If the economy continues apace, the appropriate time for a rate hike “might be as early as in the coming months”. Markets repriced immediately the rate hike, moving from 20% to 70% probability of a rate hike until the end of the year. 
  • US inflation came out above expectations as well (+0.4 vs +0.3% MoM), which pushed bond yields higher. The dollar rose as well thanks to this figure and is finally up this week. 
  • North Korean missile launched surprisingly did not push bond yields lower. It looks like markets were warned enough about the danger and now think there will be no escalation. It is a major behavioural shift with the previous weeks when the impact was more dramatic.
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