UK rate expectations "may have gone too far"


Bond markets are now "pricing in" a scenario where UK interest rates rise to around 4.5 per cent in this cycle, but that is a level at which the economy may "struggle to cope", according to Rebecca Young, who jointly runs the Artemis Strategic Bond fund. 

Young was speaking on the latest Artemis Despatches video, hosted by FTAdviser. 

She said that bond markets are presently pricing in rates at a level much higher than presently prevails in most developed markets.

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Her response has to date been to remain cautious, focused on "capital preservation" and short duration assets.

But she says "pockets of value" are starting to emerge in the government bond market now, as yields have risen so starkly. She adds that at the start of the year, "recession was not something that was on anyone's radar. But now it is".

If UK rates do not rise by as much as the market presently expects, the price of UK government bonds would be expected to rise. This would particularly apply to bonds with a longer date to maturity.

The full video can be watched by clicking on the link above. This video was recorded prior to some recent monetary policy announcements.