- In the United States, market interest rates rose and the dollar appreciated, in response to stronger-than-expected economic growth and signs of a build-up of price pressures. All other major financial markets were influenced by these developments.
- The upward shift in US market interest rates was underpinned by the Federal Open Market Committee’s adoption of a bias to tighten monetary policy on 18 May, followed by a 25 basis point rise in the federal funds target rate on 30 June.
- The European Central Bank cut its refinancing rate by 50 basis points in early April, while the Bank of Japan maintained its policy of keeping the call money rate close to zero. Nevertheless, both the euro-area and Japanese yield curves shifted upwards over the quarter, influenced by higher US interest rates and signs of stronger domestic economic growth.
- In the United Kingdom, the Bank of England’s repo rate was reduced by 25 basis points on two occasions in Q2, ending the quarter at 5.0%. But the interest rate profile implied by the futures and swap markets rose, and developed a hump at the two to five-year horizon.
- Globally, non-government bond issuance rose significantly in the first half of 1999, suggesting that the market strains and credit concerns which had surfaced last year had receded further in Q2.
- US, European and Japanese equity prices rose by 6% or more in Q2, while the FT-SE 100 index was little changed over the quarter.
- On 30 July, the Bank of England announced a major extension to the range of securities eligible for use in its repo operations.
Published on
01 September 1999
Markets and operations