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| UK gilt yields hit record lows after Bank of England bond-buying failure – business live | UK gilt yields hit record lows after Bank of England bond-buying failure – business live |
| (35 minutes later) | |
| 10.01am BST | |
| 10:01 | |
| Royal London: UK may need VAT cut if QE fails | |
| Yesterday’s bond-buying failure shows that the government cannot simply rely on monetary policy to protect the UK economy, says Darren Bustin, Head of Derivatives at Royal London Asset Management. | |
| Bustin argues that fiscal policy - government tax and spending - may have take more of the strain. That could include a cut to VAT. | |
| He also reckons that the Bank of England could suffer more failed auctions in the future. | |
| Here’s Bustin’s full comment: | |
| “The Bank of England fell £50m short in its gilt purchase target for yesterday, and even then only secured this much by paying well above market price for some of these gilts. Today’s announcement has the Bank kicking the can down the road and has created a ‘wait and see’ scenario for investors looking at reasons for the failure. As quantitive easing was meant to have been a solution for the problems facing the British economy following Brexit, if this trend continues and monetary policy is unable to achieve its goals then the baton may have to be passed to the Treasury to find a solution. | |
| “It should be noted that the DMO will issue long term gilts, maturing in 2055 next week which may mean investors will be more eager to sell other bonds to make room for this new supply, which could make up for yesterday’s shortfall. They could also continue to take advantage of the artificial demand QE has created to offer bonds at values well above the current market price. However, with plummeting government bond yields and pensions schemes desperate not to increase deficits further, we could well see more bond purchase failures, with low coverage ratios a likelihood for some time. | |
| “Longer term, if quantitative easing continues to fail this could mean a fiscal response such as a VAT cut of 2.5% in the Autumn Statement as the Treasury steps in. This could help to curb inflation as the Bank of England is currently forecasting medium term inflation above its stated 2% target.” | |
| 9.56am BST | |
| 09:56 | |
| BoE: Firms gloomy about Brexit vote | |
| The Bank of England has also reported signs that Britain’s vote to leave the European Union vote is hitting the UK economy. | |
| Its latest Agents Report, just released, warns that many firms expect capital spending, hiring and turnover to suffer. | |
| This backs up the concerns raised in last week’s August inflation report (when the Bank slashed interest rates and restarted its QE programme). | |
| Clearer signs of Brexit damage in July's BoE agents' report. Investment intentions much weaker in services sector: pic.twitter.com/ZCsvc2bzdl | |
| It’s not ALL bad news, though - British manufacturers are expecting to benefit from Brexit. That may be due to the weaker pound, which ought to help exports. | |
| Manufacturers expect a positive boost from Brexit. Every other sector: not so much. Interesting from @bankofengland: pic.twitter.com/y7LNXzXQep | |
| 9.31am BST | 9.31am BST |
| 09:31 | 09:31 |
| BoE to buy more gilts today (it hopes...) | BoE to buy more gilts today (it hopes...) |
| The Bank of England has also confirmed that it will press on with another reverse auction today, despite yesterday’s hitch. | The Bank of England has also confirmed that it will press on with another reverse auction today, despite yesterday’s hitch. |
| It is planning to buy £1.17bn of shorter-dated UK gilts – bonds with maturities below 15 years – as part of its new £60bn QE programme. | It is planning to buy £1.17bn of shorter-dated UK gilts – bonds with maturities below 15 years – as part of its new £60bn QE programme. |
| That assumes that City investors are prepared to sell their holdings in British government debt, though..... | That assumes that City investors are prepared to sell their holdings in British government debt, though..... |
| That reverse auction takes place between 2.15pm and 2.45pm today, and we’ll all be watching to see if Mark Carney gets his hands on the gilts he wants. | That reverse auction takes place between 2.15pm and 2.45pm today, and we’ll all be watching to see if Mark Carney gets his hands on the gilts he wants. |
| Updated | Updated |
| at 9.33am BST | at 9.33am BST |
| 9.17am BST | 9.17am BST |
| 09:17 | 09:17 |
| Bank of England statement released | Bank of England statement released |
| Here we go! The Bank of England isn’t giving up on its bond-buying plan, despite yesterday’s hitch. | Here we go! The Bank of England isn’t giving up on its bond-buying plan, despite yesterday’s hitch. |
| Instead, it is planning to press on, and buy an extra £52m of government debt over the next six months. That will make up for Tuesday’s embarrassing shortfall: | Instead, it is planning to press on, and buy an extra £52m of government debt over the next six months. That will make up for Tuesday’s embarrassing shortfall: |
| In a brief statement, it says: | In a brief statement, it says: |
| The Bank will incorporate the £52m shortfall from yesterday’s uncovered operation within the second half of the current six-month purchase programme. | The Bank will incorporate the £52m shortfall from yesterday’s uncovered operation within the second half of the current six-month purchase programme. |
| As set out in the Market Notice of 4 August 2016, details of these purchases will be announced on 3 November 2016. | As set out in the Market Notice of 4 August 2016, details of these purchases will be announced on 3 November 2016. |
| The statement is online here, along with more technical info for bond traders about today’s QE operation (buying short-dated gilts). | The statement is online here, along with more technical info for bond traders about today’s QE operation (buying short-dated gilts). |
| Updated | Updated |
| at 9.32am BST | at 9.32am BST |
| 9.12am BST | 9.12am BST |
| 09:12 | 09:12 |
| City investors and reporters are hammering the refresh key, looking for the Bank of England’s statement... | City investors and reporters are hammering the refresh key, looking for the Bank of England’s statement... |
| 9.04am - still nothing. Monetary policy is over. Its done. Forget it @bankofengland | 9.04am - still nothing. Monetary policy is over. Its done. Forget it @bankofengland |
| 9.07am BST | 9.07am BST |
| 09:07 | 09:07 |
| Yikes.... | Yikes.... |
| For the first time in history, we are seeing negative yields in the UK gilt curve. Two 19s and a 20 now trading with a negative yield. | For the first time in history, we are seeing negative yields in the UK gilt curve. Two 19s and a 20 now trading with a negative yield. |
| (that means 19 and 20-year bonds - the kind of long-dated gilts which the Bank hopes to buy). | (that means 19 and 20-year bonds - the kind of long-dated gilts which the Bank hopes to buy). |
| Updated | Updated |
| at 9.07am BST | at 9.07am BST |
| 9.06am BST | 9.06am BST |
| 09:06 | 09:06 |
| Toby Nangle, global co-head of asset allocation at Columbia Threadneedle, isn’t panicking about yesterday’s bond-buying failure. | Toby Nangle, global co-head of asset allocation at Columbia Threadneedle, isn’t panicking about yesterday’s bond-buying failure. |
| He reckons that the Bank of England won’t struggle to buy the bonds it needs, thanks to Mark Carney’s opposition to imposing negative interest rates in the UK. | He reckons that the Bank of England won’t struggle to buy the bonds it needs, thanks to Mark Carney’s opposition to imposing negative interest rates in the UK. |
| That means the Bank will be very reluctant to pay more than the face value of any bond (which would mean a yield below zero). | That means the Bank will be very reluctant to pay more than the face value of any bond (which would mean a yield below zero). |
| Next long gilt reverse auction will be *very* well covered. #TimeStamp | Next long gilt reverse auction will be *very* well covered. #TimeStamp |
| Reason why is Carney's fwd guidance: that rates won't fall -ve. | Reason why is Carney's fwd guidance: that rates won't fall -ve. |
| I wouldn’t bet against Toby, frankly.... | I wouldn’t bet against Toby, frankly.... |
| 8.59am BST | 8.59am BST |
| 08:59 | 08:59 |
| UK borrowing costs have been falling steadily since the Bank of England announced its new £60bn bond-buying programme last week. | UK borrowing costs have been falling steadily since the Bank of England announced its new £60bn bond-buying programme last week. |
| This nice chart from the Financial Times shows how 10-year gilt yields have hit record lows today: | This nice chart from the Financial Times shows how 10-year gilt yields have hit record lows today: |
| It’s part of a wider trend, of course - many eurozone governments can borrow even cheaper, thanks to the European Central Bank’s stimulus programmes. | It’s part of a wider trend, of course - many eurozone governments can borrow even cheaper, thanks to the European Central Bank’s stimulus programmes. |
| But as Bloomberg points out, the Brexit vote has accelerated the trend: | But as Bloomberg points out, the Brexit vote has accelerated the trend: |
| UK bonds climb before #BOE comments on QE auction ‘shortfall’ https://t.co/ferOXBY4Gr via @anoojad pic.twitter.com/Z9lus3Ftu3 | UK bonds climb before #BOE comments on QE auction ‘shortfall’ https://t.co/ferOXBY4Gr via @anoojad pic.twitter.com/Z9lus3Ftu3 |
| 8.50am BST | 8.50am BST |
| 08:50 | 08:50 |
| Bank of England QE programme explained | Bank of England QE programme explained |
| Economist Sean Richards has done a good explainer about the Bank of England’s quantitative easing programme. | Economist Sean Richards has done a good explainer about the Bank of England’s quantitative easing programme. |
| He points out that the BoE was trying (and failing) to get its hands on government debt that doesn’t mature for at least 15 years. | He points out that the BoE was trying (and failing) to get its hands on government debt that doesn’t mature for at least 15 years. |
| Tuesday’s purchases are particularly significant as they are the day that not only our children are committed to the consequences of QE but our grandchildren as well. | Tuesday’s purchases are particularly significant as they are the day that not only our children are committed to the consequences of QE but our grandchildren as well. |
| The category “over 15 years” includes our longest-dated UK Gilt which matures in 2068 and as part of previous operations the Bank of England owns some £989 million of it. | The category “over 15 years” includes our longest-dated UK Gilt which matures in 2068 and as part of previous operations the Bank of England owns some £989 million of it. |
| Sean also explains that record low gilt yields are good news for borrowers (but not, of course, for savers): | Sean also explains that record low gilt yields are good news for borrowers (but not, of course, for savers): |
| Those who have the ability to remortgage might well be noting that the UK five-year Gilt yield is a mere 0.17% as that particular rate is used for the various derivatives used to set the rates for fixed-rate mortgages. So there could be a bonanza set of offers to come unless of course the banks suck the gains into their margins. | Those who have the ability to remortgage might well be noting that the UK five-year Gilt yield is a mere 0.17% as that particular rate is used for the various derivatives used to set the rates for fixed-rate mortgages. So there could be a bonanza set of offers to come unless of course the banks suck the gains into their margins. |
| The new Bank of England QE program explained #BoE https://t.co/xnZ1HcYDPD via @notayesmansecon | The new Bank of England QE program explained #BoE https://t.co/xnZ1HcYDPD via @notayesmansecon |
| 8.29am BST | 8.29am BST |
| 08:29 | 08:29 |
| UK borrowing costs hit record lows | UK borrowing costs hit record lows |
| Boom! The interest rate on UK government debt has fallen to fresh record lows, after the Bank of England’s bond-buying failure yesterday. | Boom! The interest rate on UK government debt has fallen to fresh record lows, after the Bank of England’s bond-buying failure yesterday. |
| The yield on 10-year gilts has dropped to just 0.54%, down from 0.56% last night. | The yield on 10-year gilts has dropped to just 0.54%, down from 0.56% last night. |
| And 30-year gilts are now yielding just 1.3% -- a remarkably cheap cost of borrowing for three decades. | And 30-year gilts are now yielding just 1.3% -- a remarkably cheap cost of borrowing for three decades. |
| They can go lower...fresh records for UK10-yr, 30-yr bond yields | They can go lower...fresh records for UK10-yr, 30-yr bond yields |
| Yields move down when prices go up -- so this means that British government bonds are even more expensive than ever before. | Yields move down when prices go up -- so this means that British government bonds are even more expensive than ever before. |
| So, traders are anticipating that the Bank of England must pay even higher prices in order to prise investors hands off their bonds.... | So, traders are anticipating that the Bank of England must pay even higher prices in order to prise investors hands off their bonds.... |
| Updated | Updated |
| at 8.33am BST | at 8.33am BST |
| 8.15am BST | 8.15am BST |
| 08:15 | 08:15 |
| The agenda: Bank of England's QE statement | The agenda: Bank of England's QE statement |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| Protecting the UK economy from the risks of the Brexit vote is even harder than we expected. | Protecting the UK economy from the risks of the Brexit vote is even harder than we expected. |
| Last night, the Bank of England admitted that its new plan to buy £60bn of government bonds had hit an unexpected snag -- City investors were refusing to sell up. | Last night, the Bank of England admitted that its new plan to buy £60bn of government bonds had hit an unexpected snag -- City investors were refusing to sell up. |
| This quantitative easing scheme was a key part of the stimulus package which the BoE launched last week, alongside cutting interest rates to just 0.25%. | This quantitative easing scheme was a key part of the stimulus package which the BoE launched last week, alongside cutting interest rates to just 0.25%. |
| The idea is to buy gilts (UK government bonds) from investors, to encourage them to buy riskier assets instead and help drive economic activity. | The idea is to buy gilts (UK government bonds) from investors, to encourage them to buy riskier assets instead and help drive economic activity. |
| However, as we reported last night, gilt owners declined the Bank’s offer: | However, as we reported last night, gilt owners declined the Bank’s offer: |
| The Bank offered on Tuesday to buy back £1.17bn of long-dated gilts – those with a maturity of 15 years or more – but received offers of only £1.11bn, leaving it with a shortfall of £52m. It is the first time since the Bank started buying back bonds that it has failed to attract enough sellers. | The Bank offered on Tuesday to buy back £1.17bn of long-dated gilts – those with a maturity of 15 years or more – but received offers of only £1.11bn, leaving it with a shortfall of £52m. It is the first time since the Bank started buying back bonds that it has failed to attract enough sellers. |
| Jason Simpson, a UK rate strategist at French bank Société Générale, told Reuters: “It is a little surprising that this comes on the first week ... it is quite early in the whole process, which will be a worry for the Bank of England.” | Jason Simpson, a UK rate strategist at French bank Société Générale, told Reuters: “It is a little surprising that this comes on the first week ... it is quite early in the whole process, which will be a worry for the Bank of England.” |
| Related: Bank's post-Brexit strategy hits snag as gilt buyback falls short | Related: Bank's post-Brexit strategy hits snag as gilt buyback falls short |
| The Bank is planning to release a statement to the City at 9am, outlining its next move. It may have to offer even higher prices to persuade gilt owners to sell up. | The Bank is planning to release a statement to the City at 9am, outlining its next move. It may have to offer even higher prices to persuade gilt owners to sell up. |
| #QE craziness! Even after a massive drop in UK #yields, investors won't sell their bonds to the #BoE pic.twitter.com/PrXpwK1ml4 | #QE craziness! Even after a massive drop in UK #yields, investors won't sell their bonds to the #BoE pic.twitter.com/PrXpwK1ml4 |
| Very little else on the agenda, I’m afraid (it is August, after all), but something’s bound to turn up. | Very little else on the agenda, I’m afraid (it is August, after all), but something’s bound to turn up. |
| Europe’s stock markets have opened slightly lower, with the FTSE 100 dropping back from yesterday’s 14-month high. | Europe’s stock markets have opened slightly lower, with the FTSE 100 dropping back from yesterday’s 14-month high. |
| Our European opening calls:$FTSE 6837 down 14$DAX 10677 down 16$CAC 4450 down 18$IBEX 8633 down 32$MIB 16740 down 57 | Our European opening calls:$FTSE 6837 down 14$DAX 10677 down 16$CAC 4450 down 18$IBEX 8633 down 32$MIB 16740 down 57 |
| Updated | Updated |
| at 8.38am BST | at 8.38am BST |