UK bond prices surge after Carney comments curb rate hike bets

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By David Milliken

LONDON, April 20 (Reuters) - British government bond prices

jumped on Friday, reflecting investors' doubts about a May rate

rise after Bank of England Governor Mark Carney raised doubts

about this in a BBC interview broadcast late on Thursday.

Carney said in the interview that some recent data had been

"mixed" and that he expected there would be differences of view

among policymakers when the BoE (Shenzhen: 000725.SZ - news) meets next to set interest

rates.

June gilt futures jumped by as much as 65 ticks when

trading started on Friday, before paring gains, and

interest-rate sensitive two-year gilt yields sank by

more than 6 basis points to a low of 0.838 percent.

One closely watched gauge of interest rate expectations

showed investors thought the probability of a 25

basis point rate rise after the BoE's next meeting on May 10 had

fallen below 50 percent, from just under 70 percent before.

"Carney struck back against any doubters that he is still

king of the 'unreliable boyfriends', with his comments casting a

whole (load) of doubt that a further 25 bps rate hike is a slam

dunk," market strategist Marc Ostwald of ADM Investor Services

said.

Financial markets are now fully pricing in an increase in

rates to 0.75 percent from 0.5 percent by November's BoE

meeting, but the chance of a second rate rise this year - which

previously stood at about 50 percent - are now closer to one in

four.

Even (Taiwan OTC: 6436.TWO - news) before Carney's comments, sterling had been under

pressure from a string of data this week which showed a bigger

than expected fall in inflation, a failure of wage growth to

accelerate and a sharp weather-related drop in retail sales.

Nonetheless, few economists are willing to scrap their

predictions of a May rate rise as unemployment pressed to a new

42-year low of 4.2 percent.

"A hike in May is still likely but, as we had previously

warned, it is a much closer call than financial markets were

expecting," Unicredit (EUREX: DE000A163206.EX - news) wrote to clients on Friday.

Five-year gilt yields were 5 basis points lower

at 1.18 percent at 0745 GMT, while 10 year yields

were 4 basis points lower at 1.49 percent.

Short-sterling rate futures for June and December rose 6

ticks on the day to a one-month high

Michael Saunders, one of the two Monetary Policy Committee

members who voted last month to raise rates, will give a speech

in Glasgow at 0930 GMT that may shed more light on whether he

still sees a case for tighter policy.

June long gilt future 121.65 (+0.30)

June 2018 short sterling 99.19 (+0.065)

Dec (Shanghai: 600875.SS - news) 2018 short sterling 99.01 (+0.06)

10-year gilt yield 1.49 pct (-4 bps)

-------------------KEY MARKET DATA---------------------------

Long Gilt futures Gilt benchmark chain

Short Stg futures Cash market quotes

Deposit rates Sterling cross rates

UK debt speedguide

-------------------KEY MARKET REPORTS--------------------------

Gilts Sterling

Euro Debt Dollar

U.S. Treasuries Debt reports

--------------------GILT STRIPS DATA -------------------------

Gilt strips data All gilt strips

Gilt strips IO Gilt strips PO

(Reporting by David Milliken, editing by James Davey)