Governor Bailey insists the emergency procurement program ends this week
The crisis in the gilt market again worsened dramatically today as yields rose sharply amid confusion over the Bank of England’s emergency purchase programme.
As of late morning, the yield on the 30-year gilt was up 25 basis points at 5.027%, the highest since the bank’s intervention late last month.
The 20-year gilt was yielding 5.1% with a rise of 18 bps, the highest level since the global financial crisis.
The latest turmoil on trading floors followed mixed signals from the Bank of England around a possible extension of its intervention in the government debt market.
Governor Andrew Bailey said overnight that the UK government’s long-running £65bn plan to buy bonds would come to an end on Friday. “We will be out by the end of the week,” he said, speaking at a similar event run by the Institute of International Finance in Washington.
It seemed like a direct rejection of calls from within the pension industry to continue, at least until the next update on the government’s tax and spending plans, which the Treasury brought forward from November 23 to October 31.
Then, the Financial Times reported this morning that the BoE had indicated privately to bankers that the plan could continue.
This was followed by a statement from the BoE that it had made it “absolutely clear” to senior bank data that the intervention would end as scheduled.
Market confidence in investment for UK assets was undermined amid huge sales of UK government bonds after a so-called “mini-budget” on 23 September raised £62bn without tax cuts The need arose. Borrowing to cover their impact on public finances.
Pension funds were having trouble selling their holdings of bonds to meet their complex mix of financial commitments, including meeting their own obligations related to borrowing in the corner of the market, known as liability-driven investing, or LDI. is called. BoE’s support is designed to give them time to organize their home in this regard.
“We think there has to be a rebalancing,” Bailey said.
Francesco Pesol, FX strategist at Dutch bank ING, said: “Bailey’s speech and the FT report are indeed contradictory but not entirely inconsistent, as the BOE fears that its pledge of long-term intervention will discourage pension funds from de-levering.” will do.”
Joshua Raymond, director of online investment platform XTB.com, said: “We have seen a marked drop in UK bond markets today, with long-term gilt yields returning to the same highs that triggered the Bank of England intervention The UK 10yr bond yield is trading back at 4.56% while the 30yr yield is also at 5%. The mixed message on the part of the BOE towards expanding its bond purchase scheme has been problematic.
“The market has long called the BoE’s actions too slow and weak to halt spiraling inflation. Now we have Governor Bailey telling a listener in Washington that the BoE’s bond purchases will close on Friday and private with banks for pension funds to get their homes in order, only to quickly reverse that sentiment. After the talks leaked, the central bank could detail its plan to be shown.
“The timing of this confusion is bad and it has had the opposite effect of helping investor confidence. This is no surprise so yields are again high today.
Credit: www.standard.co.uk /