Gilt yields, pound, bank stocks rise after BoE stuns markets

[December 16, 2021]  (Reuters) - Gilt yields, the pound and British bank stocks jumped on Thursday after the Bank of England unexpectedly raised its policy rate by 15 basis points as inflation pressures mounted in Britain.

Yields on British government bonds, known as gilts, jumped following the decision and were up six-eight basis points on the day to their highest in over two weeks.

The yield curve between two and 10-year bonds narrowed to the flattest since October 2020 at 23.6 bps.

Traders pushed back their bets on subsequent rate hikes, now expecting roughly 15 bps of hikes at the Bank of England's February meeting, down from nearly 23 bps before the decision.

Sterling jumped as much as 0.8% versus the U.S. dollar at $1.3366 and spiked 0.7% versus the euro at 84.55 pence.

Rate-sensitive banks rallied, sending the FTSE 350 Bank index rallying almost 4%.

But reaction on broader equity indexes was more muted with the internationally exposed FTSE 100 index reducing gains to 1% on the day given sterling's rise.

(Reporting by the London markets team, writing by Yoruk Bahceli; editing by Saikat Chatterjee)
 

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