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BOE’s Bailey Says Trump Tariffs Cause Unwelcome Bond Volatility - BLOOMBERG
(Bloomberg) -- Bank of England Governor Andrew Bailey said he’d like to see less volatility in bond markets, much of which he puts down to a flurry of announcements around US tariffs.
“In the short run, it is what’s coming out of Washington on tariffs that’s moving the term premium around day-by-day and hour-by-hour,” he said on Tuesday at an event in Brussels, Belgium. “We’d all like to see less volatility in that.”
Bailey said UK markets are being heavily influenced by the US, with President Donald Trump using tariffs or the threat of trade action to win concessions from neighboring countries, China and Europe.
Yields across major bond markets have risen in recent months as investors eye the potentially inflationary impact of widespread trade levies from Trump’s new administration. Both the UK and US 10-year yields have risen almost a percentage point since September.
Bailey said much of the increase in yields reflects the so-called term premium, or the extra compensation investors demand to hold long-dated debt. A popular gauge of that for US Treasuries hit the highest since 2011.
US Treasury Secretary Scott Bessent said the White House is focused on the 10-year Treasury yield as a key metric for the economy, rather than the Federal Reserve’s benchmark short-term interest rate.
“I do agree with the comments that the new US Treasury Secretary Scott Bessent said, which is, I do think that we’d all like, probably like, to see less volatility in that,” Bailey said at the event hosted by think tank Bruegel. “He was very wise in actually pointing to that part of the curve as the area that it would be good to see that happening.”
Bailey also played down the threat of a resurgence in UK prices pressures ahead of figures on Wednesday that are expected to show inflation hitting a 10-month high of 2.8%.
He said the expected drivers of inflation are regulated prices, such as energy bills, and are “not telling us a story about the fundamental state of the economy.”
“It’s going to take place against a background of a position which is weaker in growth terms than we thought it would be,” Bailey added.
