A rise in market interest rates in the euro zone and the U.K. in recent weeks suggests investor confidence in central banks' forward-guidance plans may be on the wane, just weeks after the European Central Bank and the Bank of England pledged to keep interest rates lower for longer.
U.K. government bonds have slumped to their lowest levels in two years and German Bunds are trading at a 16-month low. Contracts tied to European money-market rates that are used to price trillions of euros and sterling worth of assets from corporate loans to mortgages, are predicting that interest rates for borrowers may start rising, if only moderately, as early as 2015.
Even allowing for the fact that holiday-thinned trading conditions have been magnifying moves, it is likely that the two central banks had hoped for a more favorable market response, when they followed the U.S. Federal Reserve in giving an indication to the market that interest rates were unlikely to climb unless the economic recovery appeared more robust.
The fact that bond yields are on the rise and traders have advanced their expectations of rate increases despite soothing words from the ECB and the BOE may force central banks to step in, some investors say.
