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LONDON, Sept 26 (Reuters) – British government bond prices crashed on Monday, pushing yields to their highest level in more than a decade, amid speculation that the Bank of England may have to take emergency measures after the pound hit a record high against the US dollar overnight. .
Two-year gilt yields rose 54 basis points on the day to 4.533%, their highest since September 2008, and at 0754 GMT were up 44 basis points on the day to 4.43% .
Five-year gilt yields jumped more than 44 basis points to 4.503%, their highest since October 2008, while benchmark 10-year yields hit their highest since April 2010 at 4.215%.
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UK government bond prices have been under pressure for months, hit by rising inflation and rising US and Bank of England rates, but their fall accelerated massively on Friday after the new Finance Minister Kwasi Kwarteng promised tax cuts.
Typically, gilt yields rise or fall by a few basis points during the day, but on Friday, the five-year gilt yield rose more than 50 basis points, which is the biggest decline ever. one-day prices since at least 1991. read more
The pound broke a previous low against the US dollar on Monday that had held since 1985 when Asian trading began. Read more
Bond market veteran Mohamed El-Erian, Allianz’s chief economic adviser, said Kwarteng must either reverse the trend or prepare for an emergency BoE rate hike.
“There are only two choices for the country, one is that it moderates its package… The second choice is that it leaves it to the Bank of England and in that case the Bank of England should hike to an emergency meeting because she won’t see us again until November,” El-Erian told the BBC.
The BoE raised interest rates by half a percentage point to 2.25% on Thursday – its second consecutive half-point hike, after not raising rates by that amount since 1995.
Rate futures are now pricing a three-quarter point rise to 3% no later than the BoE’s next scheduled rate announcement on Nov. 2. .
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Reporting by David Milliken; Editing by Kate Holton
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