NAB Morning Call UK wages push Gilts-Bund spread to historic levels
Dec 17, 2024
Skye Masters, NAB's market strategist known for her keen insights into financial trends, dives into the surprising rise in UK wages and its impact on bond markets. She discusses how this has created a historic yield spread between UK and German bonds, reflecting significant monetary policy differences. Masters also analyzes the mixed signals from U.S. retail sales and the implications for consumer sentiment in Australia. Finally, she speculates on potential Federal Reserve rate cuts and their effects on U.S. Treasury yields.
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Historic UK-German Yield Spread
- The UK-German bond yield spread is at its widest since German reunification in 1990 due to diverging monetary policies.
- The ECB is expected to cut rates amidst rising UK wages, forcing the Bank of England to maintain higher rates.
Diverging Central Bank Approaches
- The Bank of Canada can ease monetary policy due to falling inflation.
- Conversely, the Bank of England faces rising wages, requiring a tighter monetary stance.
UK Wage Surprise
- UK wage growth surprised expectations, rising to 5.2% excluding bonuses and even higher including bonuses.
- This reinforces expectations of a Bank of England hold on rates this week and fewer cuts next year.