Yesterday the thing quoted below happened. Today the Gilt had two large runups, and the first one was well before the BoE minutes.
Anyone else wondering why?
DJ Last BOE King Speech Preceded By Unusual Market Activity
By Paul Hannon and Andrew Peaple
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Unusual trading activity in the run-up to a speech by
Bank of England Governor Mervyn King on June 13 suggests some market
participants had advance knowledge of King's remarks.
The governor's address to a group of business leaders in Bradford was made
available to the media under embargo at around 1356 GMT. Under the embargo
rules, reporters aren't allowed to discuss the contents of the speech with
third parties ahead of its delivery.
Other than the media, only members of the Monetary Policy Committee and a
limited number of bank staff had access to the speech ahead of its delivery at
1855 GMT.
Yet market activity was more pronounced in the two hours before King's speech
than usual. Starting around 1430 GMT, markets began to price in higher interest
rates than previously.
"I heard that the King speech was going to be hawkish from a customer who is
a short term trader, that it was going to rule out a near-term rate cut," said
a futures broker at a European bank. "It wasn't widely known at first, but
after 30 minutes it had a market impact."
It's not unusual for rumors to fly ahead of a speech by King or other members
of the MPC. But on June 13, they appear to have had more substance than usual.
"It's not common for the rumors to be so accurate," said the broker.
Since King's comments can affect interest rate expectations, they are usually
preceded by subdued trading activity.
"The fact that the market moved is a bit odd - a tough speech definitely
seems to have been priced in," said Trevor Williams, an economist at Lloyds
TSB. "Usually, before a speech by an MPC member, markets tend to pause as
participants square off their positions. You wouldn't expect prices and trading
volumes to change so much."
In the two hours before King spoke, trading volumes in short sterling
contracts on the London International Financial Futures and Option Exchange, or
Liffe, were 40% higher than similar periods ahead of King's two other evening
speeches earlier this year. From 1415 GMT to 1615 GMT, around 58,713 short
sterling contracts were traded, according to Liffe. Short sterling fell,
indicating the market had scaled back expectations for a rate cut.
Williams said that the market interpreted the speech as a
tougher-than-expected stand against the threat of inflation.
Prior to the speech, market participants thought slowing consumer demand in
the U.K. was the central bank's primary worry and could prompt an interest-rate
cut by year end.
A Bank of England spokesman declined to comment for this story.
As governor, King chairs the rate-setting Monetary Policy Committee. Although
his vote carries the same weight as those of the other eight members, he is
regarded as the MPC's most influential voice.
A spokesman for the U.K.'s Financial Services Authority declined to comment
on whether it was looking into futures market trading activity on June 13 for
evidence of market abuse.
Although the FSA, which regulates trading on Liffe, defines market abuse as
the use of information for trading which is not generally available, and which
would be regarded by a 'regular user' as 'relevant', it is unclear whether a
speech by an MPC member would fall into this category.
King is next scheduled to speak Wednesday evening at the annual Mansion House
dinner in London.
Anyone else wondering why?
DJ Last BOE King Speech Preceded By Unusual Market Activity
By Paul Hannon and Andrew Peaple
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Unusual trading activity in the run-up to a speech by
Bank of England Governor Mervyn King on June 13 suggests some market
participants had advance knowledge of King's remarks.
The governor's address to a group of business leaders in Bradford was made
available to the media under embargo at around 1356 GMT. Under the embargo
rules, reporters aren't allowed to discuss the contents of the speech with
third parties ahead of its delivery.
Other than the media, only members of the Monetary Policy Committee and a
limited number of bank staff had access to the speech ahead of its delivery at
1855 GMT.
Yet market activity was more pronounced in the two hours before King's speech
than usual. Starting around 1430 GMT, markets began to price in higher interest
rates than previously.
"I heard that the King speech was going to be hawkish from a customer who is
a short term trader, that it was going to rule out a near-term rate cut," said
a futures broker at a European bank. "It wasn't widely known at first, but
after 30 minutes it had a market impact."
It's not unusual for rumors to fly ahead of a speech by King or other members
of the MPC. But on June 13, they appear to have had more substance than usual.
"It's not common for the rumors to be so accurate," said the broker.
Since King's comments can affect interest rate expectations, they are usually
preceded by subdued trading activity.
"The fact that the market moved is a bit odd - a tough speech definitely
seems to have been priced in," said Trevor Williams, an economist at Lloyds
TSB. "Usually, before a speech by an MPC member, markets tend to pause as
participants square off their positions. You wouldn't expect prices and trading
volumes to change so much."
In the two hours before King spoke, trading volumes in short sterling
contracts on the London International Financial Futures and Option Exchange, or
Liffe, were 40% higher than similar periods ahead of King's two other evening
speeches earlier this year. From 1415 GMT to 1615 GMT, around 58,713 short
sterling contracts were traded, according to Liffe. Short sterling fell,
indicating the market had scaled back expectations for a rate cut.
Williams said that the market interpreted the speech as a
tougher-than-expected stand against the threat of inflation.
Prior to the speech, market participants thought slowing consumer demand in
the U.K. was the central bank's primary worry and could prompt an interest-rate
cut by year end.
A Bank of England spokesman declined to comment for this story.
As governor, King chairs the rate-setting Monetary Policy Committee. Although
his vote carries the same weight as those of the other eight members, he is
regarded as the MPC's most influential voice.
A spokesman for the U.K.'s Financial Services Authority declined to comment
on whether it was looking into futures market trading activity on June 13 for
evidence of market abuse.
Although the FSA, which regulates trading on Liffe, defines market abuse as
the use of information for trading which is not generally available, and which
would be regarded by a 'regular user' as 'relevant', it is unclear whether a
speech by an MPC member would fall into this category.
King is next scheduled to speak Wednesday evening at the annual Mansion House
dinner in London.
