Gas price explosion jolts UK bond market

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Britain's government bond market is showing signs of strain from the country's energy crisis, with headlines about gas prices sparking heavy selling this week - a new development that points to growing unease over inflation expectations.

There was disarray in Britain in recent days as a deficit of truckers left fuel pumps dry across the land and a spike in European wholesale natural gas prices tipped energy companies into bankruptcy.

That changed on Tuesday, when a Bloomberg headline about rocketing British wholesale gas prices at 1345 GMT prompted rapid selling. Peter Chatwell, head of multi-asset strategy at Mizuho International, said there had been "discomfort" among some gilt investors badly positioned for the prospect of a BoE interest rate hike this year.

Recent moves in gilts are likely to attract the attention of BoE officials, who are trying to gauge the economic impact of widespread supply chain disruption, labour shortages and a failing energy market. Deutsche Bank investment strategist Jim Reid said Tuesday's 10 basis point rise in British 10-year breakeven rates - another reflection of long-term inflation expectations in the market - was "incredible".

The lack of clarity over the outlook suggests a return to calm in the market might be a little way off.

 

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