08.08.25 - Central banks’ action
The Bank of England (BoE) reduced its interest rate by 25bps to 4% yesterday, a move that was largely anticipated.
Meanwhile, US President Donald Trump announced the nomination of a new Federal Reserve governor, Stephen Miran, to serve on the Federal Reserve Board of Governors, to replace Adriana Kugler, who resigned last Friday.
Markets: Interest rates with an uptick
US 10-year yield: slightly higher from 4.20% to 4.26%
UK 10-year yield: up from 4.5% to 4.57%
My View:
In both cases, one would have expected yields to decline, given the dovish stance of the BoE rate cut and the potential for increased stability within the Fed. However, the opposite occurred
It appears that President Trump’s replacement of the Fed governor signals a desire to maintain stability within the central bank, reducing the likelihood of Chairman Jerome Powell being replaced before the end of his term.
In the UK, despite the rate cut, the 10-year yield increased, suggesting limited downside potential. This is likely due to the ongoing strain on the UK budget. On any news regarding this topic, the yields react with an uptick.
The trading range of the both, the UK and US 10-year yield seems to continue. The effect of tariffs is still not mirrored in the markets why there could be even an uptick going forward.
ETFMandate Portfolio: With some uncertainty of the further short-term direction of yields and given the trading range of both the UK and US 10-year yields, I decided to close both bond positions at the lower end of their respective ranges.
US 10-year yield: Closed at 4.2% (initially bought on 07.01.2025 with a yield near 4.8%)
UK 10-year yield: Closed at 4.5% (initially bought on 14.01.2025 with a yield above 4.95%)
On both positions I could realize a profit of more than 11% (price return), implemented via a ETF, 3x leveraged.
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