LONDON: A weekly auction of British government six-month Treasury bills - a form of short-term debt - saw the highest yield since April 2020 on Friday, against a backdrop of an expected rise in Bank of England interest rates.
The United Kingdom Debt Management Office sold 1 billion pounds ($1.38 billion) of bills maturing on May 3, 2022 at an average yield of 0.216773%. This was the highest yield at any weekly auction since April 9, 2020, when market conditions were choppy at the start of the COVID-19 pandemic.
The yield at last week's auction was just over 0.135%. Yields at the one-month and three-month T-bill auctions remained near zero at 0.008790% and 0.018926% respectively.
The BoE will announce its next policy decision on Nov. 4. Interest rate futures are pricing in a rise in Bank Rate to 0.25% from 0.1%, followed by another rise to 0.5% by February as the BoE seeks to keep inflation expectations in check.
Many economists think the central bank will prove more cautious, however, and wait for hard data on what has happened to unemployment after the end of the government's furlough programme on Oct. 1. Nomura expects a first rate rise in December, followed by three 25 basis-point increases in February, May and the second half of 2022, taking rates to 1% by the end of next year. Demand for the six-month T-bills was strong too. Investors bid for 3.36 times the amount on offer, the highest amount since July 16's auction, in anticipation of reduced supply in future.
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