Bonds: Buy Another Day

Bonds: Buy Another Day

The plot around the Bank of England’s bond buying scheme continues to thicken this morning after speculation grows around Andrew Bailey’s seemingly changing stance on whether to extend it past Friday. Last week, the BoE announced that they would buy up to £65bn worth in bonds in order to try to restore some price stability in spiralling bonds markets which threatens – and continues to threaten – the UK’s pension funds sector, setting a deadline of 14th October for any such bonds to be bought.

Yesterday, while speaking at the Central Banker’s conference in Washington, Bailey reaffirmed that Threadneedle street would not extend their programme past Friday, implying that pension funds had three days to get their finances in order. However yesterday evening banker’s both sides of the Atlantic speculated that Bailey would indeed extend it past this deadline, with such sentiments continuing to grow following an unnamed source who reported that the central banker would continue to buy bonds past Friday. Hence, this morning markets are continuing to speculate on whether the Bank will or will not be resolute on preserving Friday’s deadline as many in the financial services sector maintain that more time is needed. This morning we also learnt that a smaller pension fund, Columbia Threadneedle had halted withdrawals from the fund, indicating the prevalence of instability for many within the space.  

On Monday, the BoE announced that they would increase their purchases of longer-dated gilts (doubling a previous limit of £5bn per day), while yesterday they said that they would widen their programme to include purchases of inflation-linked gilts. On that same day, the 10-year inflation-linked gilt rose 64bpts to 1.24% – its highest intra-day rise since 1992.

This morning, the 10-year is currently trading at around 4.42%, meaning that it is well above Ireland (2.87%), Spain (3.47%) and Austria’s (3.04%), while still remaining lower than Greece (4.96%) and Italy’s (4.68%). This morning, the US 10-year is currently at 3.94%, some 1.63 percentage points above the German 10-year bund.

As market turmoil continues, the UK 30-year gilt yield has risen to 4.85%. Just last week we learnt that the UK is borrowing almost twice as much as expected in August as the cost of financing the UK’s £2.4tn debt continues to surge, and hence all eyes continues to be focused on the UK bond market as pressure continues to mount.

IMF Slashes Global Forecasts

The IMF have again cut global growth forecasts from 3.2% to 2.7% over the course of 2022, citing the implications of the conflict in Ukraine, instability within the global real-estate sector and the effects of rising inflation and subsequent rising interest rates. The IMF also hypothesised that there was a 25% chance that growth would fall below 2% and that growth for 2023 would be 2.7% stating that “this is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic”.

The Washington based fund also stated that global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022 but to decline to 6.5% in 2023 and to 4.1% by 2024.

Today in Focus

Today again has a host of central bank speakers including the BoE’s Huw Pill and the ECB’s Lagarde; the Fed’s Patrick Harker and Loretta Mester as they convene in Washington D.C for the annual IMF and World Bank meetings. UK GDP also came in below expectation of 0% as it hit -0.3% on a month-on-month basis, while annualised industrial and manufacturing production also slumped -5.2% and -6.7% respectively.