Bank of England governor calls for reduced bond market volatility

Investing.com -- Bank of England Governor Andrew Bailey has expressed his desire for less turbulence in the bond markets, attributing much of the current instability to announcements regarding US tariffs. Speaking at an event in Brussels, Belgium on Tuesday, Bailey highlighted the impact of decisions made in Washington on the term premium, which he said fluctuates frequently due to the tariff announcements.

Bailey noted that the UK markets are significantly affected by the US. He pointed out that President Donald Trump's use of tariffs and trade action threats to gain concessions from neighboring countries, China, and Europe is having a substantial influence.

The governor explained that the rise in yields largely mirrors the term premium, which is the additional compensation investors require to hold long-dated debt. He referred to a key indicator for US Treasuries, which recently reached its highest level since 2011.

At the event organized by think tank Bruegel, Bailey agreed with US Treasury Secretary Scott Bessent's comments about the need for less volatility. He praised Bessent for wisely identifying this part of the curve as an area where stability would be beneficial.

In addition, Bailey downplayed the possibility of a spike in UK price pressures. He made this comment ahead of Wednesday's anticipated announcement, which is expected to reveal that inflation has reached a 10-month high of 2.8%.

The governor identified regulated prices, such as energy bills, as the expected drivers of inflation. He clarified that these factors do not provide insight into the fundamental state of the economy. Bailey concluded by stating that these developments are occurring in the context of slower economic growth than previously anticipated.

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