This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at https://www.theguardian.com/business/live/2016/aug/10/uk-gilt-yields-hit-record-lows-after-bank-of-england-bond-buying-failure-business-live

The article has changed 15 times. There is an RSS feed of changes available.

Version 8 Version 9
UK gilt yields hit record lows after Bank of England bond-buying failure – business live Bank of England shakes off QE wobble with successful £1.17bn bond buy – business live
(35 minutes later)
3.14pm BST
15:14
News of the day’s successful Bank of England bond buying has seen a recovery in the market, with two year and five year yields now in positive territory. But 10 year and 30 year yields are both still down, but better than they were.
Updated
at 3.15pm BST
2.57pm BST
14:57
Today's QE reverse auction in a success!
Newsflash! Today’s Bank of England QE operation has passed off without a hitch.
The BoE has successfully bought £1.17bn of UK gilts in today’s reverse auction. These bonds mature between 2023 and 2030.
Investors flocked to take advantage of the chance to sell these bonds to the Bank of England.
They offered £5.5bn worth of gilts to the Bank of England -- or 4.7 times as much as the central bank actually wanted to buy.
That’s a pretty solid result, especially after yesterday’s failed reverse auction of long-dated bonds.
Huge https://t.co/UtoFou8IyC
BOE GILT-PURCHASE OPERATION FULLY COVERED.They must have offered those free glitter tattoos and head massages. pic.twitter.com/WIZVs4XPej
Updated
at 3.01pm BST
2.50pm BST2.50pm BST
14:5014:50
On a lighter note, the Bank of England has taken one of its new plastic five pound notes up to Yorkshire, to pose with the pioneering steam locomotive of the industrial revolution.On a lighter note, the Bank of England has taken one of its new plastic five pound notes up to Yorkshire, to pose with the pioneering steam locomotive of the industrial revolution.
#TheNewFiver meets another first, Stephenson's Rocket train, @railwaymuseum in York today. pic.twitter.com/dypxdAwCma#TheNewFiver meets another first, Stephenson's Rocket train, @railwaymuseum in York today. pic.twitter.com/dypxdAwCma
2.34pm BST2.34pm BST
14:3414:34
Good luck, chaps....Good luck, chaps....
The Bank of England is currently trying to buy £1.17 billion of ~10 year UK Gilts. Let's hope it makes less of a mess of it than yesterdayThe Bank of England is currently trying to buy £1.17 billion of ~10 year UK Gilts. Let's hope it makes less of a mess of it than yesterday
2.33pm BST2.33pm BST
14:3314:33
A quick correction: UK bonds maturing in 2019 and 2020 have turned negative this morning, which means they are changing hands for more than their face value.A quick correction: UK bonds maturing in 2019 and 2020 have turned negative this morning, which means they are changing hands for more than their face value.
This BBC page has the details.This BBC page has the details.
2.15pm BST2.15pm BST
14:1514:15
Bank of England launches another reverse auction...Bank of England launches another reverse auction...
Over at the Bank of England, the cry has gone up:Over at the Bank of England, the cry has gone up:
Once more unto the bond market, dear friends, once more.Once more unto the bond market, dear friends, once more.
OK, that’s probably not accurate. But the BoE has just launched another QE reverse auction, despite yesterday’s hitches.OK, that’s probably not accurate. But the BoE has just launched another QE reverse auction, despite yesterday’s hitches.
Today the BoE is trying to persuade investors to sell bonds of between seven and 15-years maturity, rather than the longer-dated bonds which were targeted yesterday. It hopes to buy £1.17bn of gilts, injecting that money into the financial system to fight the risk of a Brexit slowdown.Today the BoE is trying to persuade investors to sell bonds of between seven and 15-years maturity, rather than the longer-dated bonds which were targeted yesterday. It hopes to buy £1.17bn of gilts, injecting that money into the financial system to fight the risk of a Brexit slowdown.
The process runs for 30 minutes, from 2.15pm to 2.45pm. We should get the results shortly afterwards.The process runs for 30 minutes, from 2.15pm to 2.45pm. We should get the results shortly afterwards.
UpdatedUpdated
at 2.39pm BSTat 2.39pm BST
1.37pm BST1.37pm BST
13:3713:37
Here’s a pithy explanation of what’s gone wrong with the Bank of England’s quantitative easing stimulus programme, from Danny Vassiliades, Principal at pensions consultants Punter Southall:Here’s a pithy explanation of what’s gone wrong with the Bank of England’s quantitative easing stimulus programme, from Danny Vassiliades, Principal at pensions consultants Punter Southall:
UpdatedUpdated
at 1.40pm BSTat 1.40pm BST
1.01pm BST1.01pm BST
13:0113:01
Some City experts believe yesterday’s QE failure was partly due to the summer lull, as many bond vigilantes have fled their desks and gone on holiday.Some City experts believe yesterday’s QE failure was partly due to the summer lull, as many bond vigilantes have fled their desks and gone on holiday.
But even so, the hitch means the BoE faces paying higher prices for gilts.But even so, the hitch means the BoE faces paying higher prices for gilts.
Mihir Kapadia, CEO and Founder of Sun Global Investments, explains:Mihir Kapadia, CEO and Founder of Sun Global Investments, explains:
Buyers were perhaps more reluctant to sell than the BoE estimated, but this may just reflect the fact that many traders, fund managers and other decision makers are on holiday.Buyers were perhaps more reluctant to sell than the BoE estimated, but this may just reflect the fact that many traders, fund managers and other decision makers are on holiday.
“Although the news has come as a surprise to investors, it is much too early and too simplistic to say the BoE’s plan to mitigate the impact of Brexit was unsuccessful. The BoE will try again in a series of planned regular purchases and may well be able to buy in the required amounts. However, it is clear that the move has had some market impact and the purchases are likely to be at higher prices than anticipated.”“Although the news has come as a surprise to investors, it is much too early and too simplistic to say the BoE’s plan to mitigate the impact of Brexit was unsuccessful. The BoE will try again in a series of planned regular purchases and may well be able to buy in the required amounts. However, it is clear that the move has had some market impact and the purchases are likely to be at higher prices than anticipated.”
12.51pm BST12.51pm BST
12:5112:51
This is what record low interest rates and money-printing QE schemes leads to...This is what record low interest rates and money-printing QE schemes leads to...
48% of Eurozone government bonds now trade with a negative yield. A whopping 86% is yielding below 1%.48% of Eurozone government bonds now trade with a negative yield. A whopping 86% is yielding below 1%.
12.32pm BST12.32pm BST
12:3212:32
The yield on Britain’s five-year bonds has also hit a new all-time low this morning, touching just 0.123%.The yield on Britain’s five-year bonds has also hit a new all-time low this morning, touching just 0.123%.
12.01pm BST12.01pm BST
12:0112:01
Duncan Weldon, head of research at the Resolution Group, has also blogged about the Bank of England’s QE problems.Duncan Weldon, head of research at the Resolution Group, has also blogged about the Bank of England’s QE problems.
He explains why the Bank couldn’t buy enough gilts yesterday:He explains why the Bank couldn’t buy enough gilts yesterday:
Whilst ten year gilt yields hovering around 0.5% may be historically low — they are still high compared to what’s on offer in much of the rest of the developed world. There’s a substantial premium in that 0.5% compared to Japan, Switzerland, Germany, France or the Netherlands.Whilst ten year gilt yields hovering around 0.5% may be historically low — they are still high compared to what’s on offer in much of the rest of the developed world. There’s a substantial premium in that 0.5% compared to Japan, Switzerland, Germany, France or the Netherlands.
In other words, insurance companies & pension funds may be reluctant to sell longer dated gilts, overseas investors may be more reluctant to sell than in 2009 and the Bank (clearly) can’t buy gilts from itself. In effect the available market of gilts the Bank faces is much smaller. Hence hitting a snag on day two.In other words, insurance companies & pension funds may be reluctant to sell longer dated gilts, overseas investors may be more reluctant to sell than in 2009 and the Bank (clearly) can’t buy gilts from itself. In effect the available market of gilts the Bank faces is much smaller. Hence hitting a snag on day two.
Duncan also has three good suggestions to improve Britain’s response to the Brexit vote:Duncan also has three good suggestions to improve Britain’s response to the Brexit vote:
1) The BoE should buy more short-dated bonds. This would push down borrowing costs over the next couple of years, giving more immediate help to households and businesses1) The BoE should buy more short-dated bonds. This would push down borrowing costs over the next couple of years, giving more immediate help to households and businesses
2) The government should spend more, financed by higher borrowing. Record low gilt yields means borrowing has never been cheaper, after all.2) The government should spend more, financed by higher borrowing. Record low gilt yields means borrowing has never been cheaper, after all.
3) A new “British Investment Bank” should be created. It would drive loans to small businesses, and to fund infrastructure projects -- with the Bank of England allowed to buy bonds issued by the BIB.3) A new “British Investment Bank” should be created. It would drive loans to small businesses, and to fund infrastructure projects -- with the Bank of England allowed to buy bonds issued by the BIB.
Post: Making QE more effective - https://t.co/5ZGbjuN4TT - on yesterday's snag and the next steps the Bank could take.Post: Making QE more effective - https://t.co/5ZGbjuN4TT - on yesterday's snag and the next steps the Bank could take.
UpdatedUpdated
at 12.01pm BSTat 12.01pm BST
11.05am BST11.05am BST
11:0511:05
Pension funds fear more pain from QEPension funds fear more pain from QE
The recent slump in UK gilt yields is dire news for pension funds, whose deficits are steadily worsening.The recent slump in UK gilt yields is dire news for pension funds, whose deficits are steadily worsening.
With government bonds offering such meagre returns, fund managers must expect even lower rates of return in the years ahead.With government bonds offering such meagre returns, fund managers must expect even lower rates of return in the years ahead.
That’s why the Bank of England struggled to buy enough bonds yesterday -- pensions are clinging onto the gilts they already own, as they’re generating a higher income than stuff they could buy today.That’s why the Bank of England struggled to buy enough bonds yesterday -- pensions are clinging onto the gilts they already own, as they’re generating a higher income than stuff they could buy today.
This pretty much sums up why the BoE QE operation failed pic.twitter.com/yv7FKLocPkThis pretty much sums up why the BoE QE operation failed pic.twitter.com/yv7FKLocPk
Patrick Bloomfield, Partner at financial consultancy Hymans Robertson, explains:Patrick Bloomfield, Partner at financial consultancy Hymans Robertson, explains:
The combined deficit of UK defined benefit (DB) pension schemes has hit £950bn for the first time ever. This is off the back of further drops in yields as the Bank of England attempts to roll out its package of Quantitative Easing. The BoE failed to buy the gilts it hoped to yesterday as investors seem to be unwilling to part with their longer-dated bonds. In light of that we could see the situation deteriorate further over the coming days.The combined deficit of UK defined benefit (DB) pension schemes has hit £950bn for the first time ever. This is off the back of further drops in yields as the Bank of England attempts to roll out its package of Quantitative Easing. The BoE failed to buy the gilts it hoped to yesterday as investors seem to be unwilling to part with their longer-dated bonds. In light of that we could see the situation deteriorate further over the coming days.
“It’s doesn’t come as a surprise that pension schemes are being hit hard, but the pain won’t be felt equally by all. The difference between those that had hedged and those that hadn’t will be marked. Many schemes with robust funding plans will be able to weather this. But some will be feeling the pain acutely, and there could be more to come.“It’s doesn’t come as a surprise that pension schemes are being hit hard, but the pain won’t be felt equally by all. The difference between those that had hedged and those that hadn’t will be marked. Many schemes with robust funding plans will be able to weather this. But some will be feeling the pain acutely, and there could be more to come.
10.49am BST10.49am BST
10:4910:49
Markus Allenspach, head of fixed income research at Julius Baer, also believes the Bank of England may struggle to deliver its new QE programme.Markus Allenspach, head of fixed income research at Julius Baer, also believes the Bank of England may struggle to deliver its new QE programme.
Like Royal London, he also predicts that the Treasury may have to step in, if investors refuse to sell their gilts to the BoE.Like Royal London, he also predicts that the Treasury may have to step in, if investors refuse to sell their gilts to the BoE.
It should be kept in mind that UK pension funds and insurance companies are forced to match the duration of their assets with their liabilities, which are longer-term by nature. There is, so to say, an institutionalised demand for long-dated paper which could make it hard for the BoE to achieve its targets for Gilt purchases.It should be kept in mind that UK pension funds and insurance companies are forced to match the duration of their assets with their liabilities, which are longer-term by nature. There is, so to say, an institutionalised demand for long-dated paper which could make it hard for the BoE to achieve its targets for Gilt purchases.
In contrast to Germany, we sense a higher probability of a fiscal boost for the UK, which could limit the downside for Gilt yields in the medium term.In contrast to Germany, we sense a higher probability of a fiscal boost for the UK, which could limit the downside for Gilt yields in the medium term.
UpdatedUpdated
at 10.50am BSTat 10.50am BST
10.25am BST10.25am BST
10:2510:25
Investors are piling into UK debt, after the Bank of England promised to make up the £50m shortfall in yesterday’s QE programme.Investors are piling into UK debt, after the Bank of England promised to make up the £50m shortfall in yesterday’s QE programme.
That is sending yields down to fresh record lows, as traders calculate that the BoE will pay ‘whatever it takes’ to get its hands on the gilts.That is sending yields down to fresh record lows, as traders calculate that the BoE will pay ‘whatever it takes’ to get its hands on the gilts.
So the 10 yr Gilt is now trading at a yield of .53%.So the 10 yr Gilt is now trading at a yield of .53%.
10.16am BST10.16am BST
10:1610:16
More reaction to the Bank’s statement:More reaction to the Bank’s statement:
Aberdeen Asset Mgt: "The BoE’s statement today doesn’t amount to a hill of beans. That shortfall could grow." #giltsAberdeen Asset Mgt: "The BoE’s statement today doesn’t amount to a hill of beans. That shortfall could grow." #gilts
The @bankofengland’s “response” to that uncovered QE auction yday: it’ll just buy some more gilts another day https://t.co/VVON8yCcf4The @bankofengland’s “response” to that uncovered QE auction yday: it’ll just buy some more gilts another day https://t.co/VVON8yCcf4
10.01am BST10.01am BST
10:0110:01
Royal London: UK may need VAT cut if QE failsRoyal 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.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.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.He also reckons that the Bank of England could suffer more failed auctions in the future.
Here’s Bustin’s full comment: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.“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.“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.”“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.”