UK government bonds slid after the Bank of England’s boost to its quantitative-easing programme was offset by market fears that the pace of its purchases will slow.
The longest-dated maturities led the slump, following the £100bn ($125bn) increase to the programme.
While that was in line with the amount forecast by economists, the BoE said that it would be completed by the end of the year.
“This is knee jerk very bearish” for gilts, said John Wraith, head of UK and European rates strategy at UBS Group AG. “The speculation they would err on the side of doing more rather than less were clearly dashed.”
Money markets moved away from betting on a historic shift to sub-zero rates after the policy announcement.
Investors had been pricing in more stimulus from the BoE to help ease financial conditions and support the economy from what may be its worst recession in centuries.
They’re now expecting at most eight basis points of interest-rate cuts by next summer.
Wraith estimated that the pace of purchases will fall to around £5bn per week, from around £13.5bn currently, eroding a valuable pillar of support for the market.
The BoE said it could increase QE again if needed.
Yields on 30-year gilts rose eight basis points to 0.66%, the highest level in over two weeks.
The pound held its earlier losses and was down for a third day against the dollar.
Policy makers voted unanimously to hold rates at 0.1%, and 8-1 in favour of boosting bond buying.
Their stimulus so far has helped sterling bounce back from a 35-year low against the dollar in March, when the coronavirus forced lockdowns, but the outlook for the UK economy remains bleak.
from Gulf Times https://ift.tt/2YM2nLo
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