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☆ UK postal workers begin holiday season strikes
▼ + stars: | 2022-10-13 | by ( Anna Cooban | ) edition.cnn.com time to read: +4 min

As many as 115,000 Royal Mail staff went on strike on Thursday to demand better pay and working conditions. It was the first of 19 days of strikes planned to coincide with the peak holiday shopping season, including Black Friday and Cyber Monday. Royal Mail has said that most letters will not be delivered on strike days, and customers should expect delays to parcel deliveries. It would deliver as many tracked parcels and those tagged for fast-track delivery as possible on strike days, the company added. Amazon (AMZN) workers are being balloted on strike action, with the result of the vote expected next week.

☆ British pound jumps on reports UK government may reverse parts of its tax-cutting proposals
▼ + stars: | 2022-10-13 | by ( Sam Meredith | ) www.cnbc.com time to read: +1 min

In this photo illustration, the British pound is seen displayed. LONDON — Sterling jumped against the U.S. dollar on Thursday following multiple reports that the British government is in talks to scrap parts of its unfunded package of tax cuts. The British pound traded 1.5% higher at $1.1269 during afternoon deals in London, before paring gains on robust U.S. inflation data. Long-dated U.K. government bonds — known as "gilts" — rallied sharply, pushing yields down to just over 4.41%. Truss and Kwarteng have both insisted the government's proposals are necessary to get the economy growing.

"The ongoing squeeze on household finances continues to weigh on growth, and likely to have caused the UK economy to enter a technical recession from the third quarter of this year," Yael Selfin, chief economist at KPMG UK, said. Manufacturing fell by 1.6% from July and more maintenance than unusual in the North Sea hit the mining and quarrying sector which includes oil and gas. "Many other consumer-facing services struggled, with retail, hairdressers and hotels all faring relatively poorly," ONS Chief Economist Grant Fitzner said. GDP in September is likely to be weakened by a one-off public holiday to mark the funeral of Queen Elizabeth. The International Monetary Fund said on Tuesday it expected British GDP to grow in 2023 but only by 0.3%.

☆ Britain warns of tighter rules for crisis-hit LDI funds
▼ + stars: | 2022-10-12 | by ( Huw Jones | ) www.reuters.com time to read: +3 min

The FCA regulates asset managers who sell and run LDI strategies, while TPR regulates pension funds. The BoE oversees banks, some of which are part of the LDI chain. LDI is a popular product sold by asset managers to pension funds, using derivatives to help them match assets with liabilities so there is no risk of a shortfall in money to pay pensioners. Pension funds struggled to come up with higher collateral calls to back the derivatives used in the strategy, forcing the BoE to intervene in the gilts market. Given many LDI funds are listed in Dublin or Luxembourg, the European Union would also need to make reforms to implement such requirements.

☆ BoE's Pill: UK fiscal policy must not threaten credibility
▼ + stars: | 2022-10-12 | by ( William Schomberg | ) www.reuters.com time to read: +2 min

While bond yields have risen globally all year, the sharp slump came immediately after finance minister Kwasi Kwarteng's first fiscal statement, which lacked the usual independent forecasts and included 45 billion pounds ($49.7 billion) of unfunded tax cuts. "Ensuring that this shift - in concert with other fiscal policy actions - does not bring the longer-term sustainability of the public finances or respect for the wider institutional framework for macroeconomic policy into question remains key," he said. "Maintaining the credibility and integrity of that framework supports the effectiveness of monetary policy in pursuing its own objectives," he added in a speech text published by the BoE. "At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks," Pill said in a speech text published by the BoE. ($1 = 0.9048 pounds)Register now for FREE unlimited access to Reuters.com RegisterReporting by David Milliken; editing by William SchombergOur Standards: The Thomson Reuters Trust Principles.

That was when the BoE moved to quell bond market turmoil triggered by the plans of the new government of Prime Minister Liz Truss for big, unfunded tax cuts. Register now for FREE unlimited access to Reuters.com Register"We have announced that we will be out by the end of this week. "My message to the funds involved and all the firms involved managing those funds: You've got three days left now. Investors are nervous that Friday's deadline for the end of the BoE's bond-buying might come too soon for some funds. The BoE press office said it had no further comment to make beyond those of Bailey on Tuesday in Washington.

☆ UK gilt yields rise after BoE's Bailey sets pensions deadline
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +1 min

LONDON, Oct 12 (Reuters) - British government bond yields rose again on Wednesday after Bank of England Governor Andrew Bailey told pension funds they had three days to sort out their liquidity problems before the central bank ends its emergency bond market intervention. The 20-year gilt yield rose above 5% for the first time Sept. 28, the day the BoE intervened to quell turmoil in the bond market triggered by the government's announcement of big, unfunded tax cuts. It was last at 4.938%, up 2 basis points on the day. Yields rose across the range of maturities with the sharpest increase seen in two-year gilts , up about 10 basis points on the day. Register now for FREE unlimited access to Reuters.com RegisterReporting by Andy Bruce Editing by William SchombergOur Standards: The Thomson Reuters Trust Principles.

☆ BoE intervention saved pension schemes from needing employer cash-regulator
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +3 min

The surge led to demands on pension schemes to stump up more collateral on liability-driven investments (LDI) - typically derivatives used to hedge government bonds. The Bank of England (BoE) stepped in to buy government bonds, but its programme is due to end on Friday, pressuring pension schemes to sell billions in pounds of assets to meet their collateral calls before that support is withdrawn. But some schemes may have lost money after the surge in yields forced them out of their LDI positions. "The exact outcomes for pension schemes is mixed. UK pension fund trustees should step up engagement with investment managers to quantify funding gaps and risks prior to the end of the BoE's bond-buying scheme, the regulator said earlier on Wednesday in guidance for trustees.

☆ The UK's recent market turmoil wasn't caused by the mini-budget, and the chaos was a result of interest rate 'differentials', Britain's business secretary says
▼ + stars: | 2022-10-12 | by ( Carla Mozée | ) www.businessinsider.com time to read: +3 min

The turbulence in UK financial markets stems from the gap between UK and US interest rates, acob Rees-Mogg said Wednesday. The turbulence is "primarily caused by interest-rate differentials rather than by the fiscal announcement," he said. The fed funds rate in the US stands at 3%-3.25% and the UK's Bank Rate stands at 2.25%. "What has caused the effect in pension funds, because of some quite high-risk but low-probability investment strategies, is not necessarily the mini-budget. That decision was released after the Federal Reserve raised interest rates by a hefty 75 basis points, marking the third consecutive increase of that size, as it also battles inflation that's around a four-decade high.

☆ UK economy unexpectedly shrinks in August, falls by 0.3%
▼ + stars: | 2022-10-12 | by ( ) www.cnbc.com time to read: +1 min

ONS figures showed that real wages in the U.K. over the three months to May experienced their steepest decline since records began in 2001. Britain's economy shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in North Sea oil and gas fields, according to official data which underscored the challenge for Prime Minister Liz Truss to speed up growth. "The economy shrank in August with both production and services falling back, and with a small downward revision to July's growth the economy contracted in the last three months as a whole," ONS Chief Economist Grant Fitzner said. Fitzner highlighted a "notable decrease" in the manufacturing sector and a greater level than usual of maintenance in the North Sea oil and gas sector which slowed output. Britain's economy looks set to slow sharply as surging inflation hits households and forces the Bank of England to raise interest rates quickly.

☆ Morning Bid: Confusion reigns
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +4 min

Then BoE chief Andrew Bailey said late Tuesday: "You've got three days left now. You've got to get this done" - even as the Financial Times reported the central bank might extend the support. The tension built with Britain's economy looking set to go into recession as data showed it unexpectedly shrank in August. "The worst is yet to come, and for many people, 2023 will feel like a recession," said IMF chief economist Pierre-Olivier Gourinchas. * G20 finance ministers and central bankers meet at annual IMF/World Bank meeting in Washington* Bank of England Financial Policy Committee publishes summary of latest meeting.

☆ Bailey outburst blunts BoE crisis-fighting tools
▼ + stars: | 2022-10-12 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

LONDON, Oct 12 (Reuters Breakingviews) - Andrew Bailey is in danger of blunting the Bank of England’s crisis tools. The UK central bank governor on Tuesday vowed to end emergency bond-buying that has been propping up pension funds, even as investors increasingly assumed the scheme might get extended. Indeed, 30-year bond yields have risen further on Wednesday. Lastly, if Bailey is indeed forced to U-turn by extending the programme, he will have damaged the bank’s credibility. The BoE announced a 65 billion pound government bond purchase scheme on Sept. 28 to help indebted pension funds facing margin calls avoid being forced to sell gilts.

☆ Breakingviews: Bailey outburst blunts BoE crisis-fighting tools
▼ + stars: | 2022-10-12 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

LONDON, Oct 12 (Reuters Breakingviews) - Andrew Bailey is in danger of blunting the Bank of England’s crisis tools. The UK central bank governor on Tuesday vowed to end emergency bond-buying that has been propping up pension funds, even as investors increasingly assumed the scheme might get extended. Indeed, 30-year bond yields have risen further on Wednesday. CONTEXT NEWSBank of England Governor Andrew Bailey reiterated in a speech on Oct. 11 that the bank planned to its cease its emergency government bond purchases on Oct. 14. The BoE announced a 65 billion pound government bond purchase scheme on Sept. 28 to help indebted pension funds facing margin calls avoid being forced to sell gilts.

And futures now assume the inflation fight will fall solely on the BoE and expect it to triple policy rates to as high as 5.8-6% next year. On Tuesday, the independent Institute for Fiscal Studies said Kwarteng needed 62 billion pounds ($68.22 billion) of spending cuts to keep public debt sustainable over time, with borrowing this year on course for 194 billion pounds and still above 100 billion by 2026/27 - over 70 billion higher than OBR forecasts in March. QE involves the purchase of mostly gilts from commercial banks in return for interest-bearing reserves at the central bank. And, unlike other major central banks, the BoE policy rate itself is the rate paid on those bank reserves. NIESR last year urged a solution to the problem whereby Treasury and central bank reduced the maturity mismatch by swapping longer-dated gilts back to Treasury to cut duration of its portfolios.

We think the rebalancing must be done," Bailey said at an event organised by the Institute of International Finance. "My message to the funds involved and all the firms involved managing those funds: You've got three days left now. Bailey was keen to distinguish between the temporary, financial stability nature of the latest intervention and previous quantitative easing stimulus. HEAVY LOSSESInflation-linked gilts, typically held by pension funds and known in the market as linkers, suffered a massive sell-off on Monday as the end to the BoE's programme on Friday approached. Simeon Willis, chief investment officer of pension consultants XPS, said he had seen pension funds selling "across the board" to find liquidity.

☆ Factbox: What are index-linked bonds and why is the Bank of England is buying them?
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +3 min

REUTERS/Phil Noble/File PhotoLONDON, Oct 11 (Reuters) - The Bank of England said on Tuesday it would buy index-linked government debt as part of its emergency programme to try and quell turmoil in the debt market. Following is a summary of what index-linked bonds are and why the BoE is buying them. The recent surge in inflation globally has increased demand for index-linked bonds by investors, but their sensitivity to rising interest rates means many have fallen in value this year. Britain's stock of index-linked debt stood at around 558 billion pounds ($617.54 billion) on Tuesday, making up about a quarter of the government's debt portfolio, a bigger share than in many other rich economies. The BoE said it would buy up to 5 billion pounds of index-linked bonds a day, the same as its maximum for normal bonds.

☆ Jamie Dimon says UK government deserves benefit of the doubt after sparking market turmoil
▼ + stars: | 2022-10-11 | by ( Hannah Ward-Glenton | ) www.cnbc.com time to read: +1 min

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co. says the new U.K. government should be "given the benefit of the doubt." JPMorgan Chase CEO Jamie Dimon said new governments "always have issues" and U.K. Prime Minister Liz Truss should be "given the benefit of the doubt" following a turbulent first month in office. "I would like to see the new prime minister, the new chancellor, be successful," he said. Dimon's comments come after a rocky few weeks for Truss's administration. Sterling plummeted and yields on U.K. government bonds, or "gilts," were sent through the roof and have yet to return to their pre-announcement levels.

☆ Sterling falls for a fifth day; turmoil dogs the bond market
▼ + stars: | 2022-10-11 | by ( Amanda Cooper | ) www.reuters.com time to read: +4 min

LONDON, Oct 11 (Reuters) - The pound fell for a fifth day on Tuesday as the turmoil engulfing UK government bond markets forced the Bank of England to step in yet again to attempt to stem a damaging sell-off in the country's debt. Sterling fell 0.3% to $1.1036, and was also down 0.3% versus the euro at 88.00 pence. If you have a look at the population of holders of long-dated UK assets - anything that is 15-20 years - it's mostly domestic funds," ADM Investor Services Chief Economist Marc Ostwald said. The pound promptly nosedived and the gilts market went into a tailspin, putting pension funds at risk of insolvency. But sterling's problems extend beyond the liquidity crunch in the gilts market.

☆ IMF urges UK to align fiscal policy with BoE inflation goals
▼ + stars: | 2022-10-11 | by ( David Milliken | ) www.reuters.com time to read: +2 min

"Fiscal policy should be aligned with monetary policy," Gourinchas said at a news conference in Washington, when asked about Britain's economic situation and the turmoil in its government bond market. "Central banks are trying to tighten monetary policy, and if you have at the same time fiscal authorities that try to stimulate aggregate demand, it's like having a car with two people in the front ... each trying to steer the car in a different direction. "Now what we've seen in the UK market, we've seen market dysfunction, related to some illiquidity in some segments," Gourinchas said. The IMF published new growth forecasts for Britain on Tuesday, although these were finalised before Kwarteng's Sept. 23 statement. The Fund expects British economic growth to slow to 0.3% next year compared with a July forecast of 0.5% growth for 2023.

☆ Bank of England's Bailey tells pension funds they have 3 days to rebalance
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +1 min

WASHINGTON, Oct 11 (Reuters) - Bank of England Governor Andrew Bailey told pension fund managers to finish rebalancing their positions by Friday when the British central bank is due to end its emergency support programme for the county's fragile bond market. We think the rebalancing must be done," Bailey said at an event organised by the Institute of International Finance in Washington on Tuesday. "And my message to the funds involved and all the firms involved managing those funds: You've got three days left now. But Bailey stressed that the programme was part of the BoE's financial stability operations, not a monetary policy tool, and had to be temporary. "Things seemed calmer again today," Bailey said, referring to conditions in the gilt market.

☆ Bank of England warns risks to UK financial stability haven't gone away
▼ + stars: | 2022-10-11 | by ( Mark Thompson | ) edition.cnn.com time to read: +4 min

A slump in UK government bonds that promise to protect investors from inflation — known as index-linked gilts — was the latest source of risk, it said. “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” it said in a statement. Starting Tuesday, the Bank of England will include index-linked gilts in its emergency £65 billion ($71.7 billion) bond-buying program announced on Sept. 28. The market meltdown began after Prime Minister Liz Truss’ government unveiled £45 billion in unfunded tax cuts on Sept. 23. And with monetary and fiscal policy now working in opposite directions, we think the broader risks around UK monetary [and] financial stability are growing,” he added.

☆ The Bank of England should extend its emergency bond-buying to manage the volatility that's rocked the country's debt market, UK pensions group says
▼ + stars: | 2022-10-11 | by ( Carla Mozée | ) www.businessinsider.com time to read: +4 min

A UK pensions trade group on Tuesday called on the Bank of England to continue its emergency bond-buying operations to manage volatility in the debt market. The central bank began its bond-market intervention last month as fears of a UK financial crisis risked damaging investments held by pension funds. The BoE is expected to continue purchasing long-dated UK bonds until Friday under its £65 billion intervention aimed at stemming a massive sovereign debt sell-off. The BoE last week said $1 trillion in UK pension funds' investments could have been lost if it didn't intervene with its emergency bond purchases. The group said pension funds over the last couple of weeks have, among other actions, taken steps to strengthen their financial resilience.

☆ BoE drawn into risky game of financial whac-a-mole
▼ + stars: | 2022-10-11 | by ( Neil Unmack | ) www.reuters.com time to read: +5 min

On Tuesday, the UK central bank said it would buy more bonds to avert a fire sale by pension funds. But its plan to end such support on Friday is hampered by a distressed bond market, and wayward government. Prime Minister Liz Truss’s unfunded plan to cut taxes had triggered a surge in government bond yields, which in turn forced indebted pension funds to sell assets. Register now for FREE unlimited access to Reuters.com RegisterThere are plenty of signs that the bond market remains distressed. Without a credible fiscal strategy, investors may continue to steer clear of UK gilts.

☆ Fire-fighting Bank of England forced to buy inflation-linked bonds
▼ + stars: | 2022-10-11 | by ( Andy Bruce | ) www.reuters.com time to read: +3 min

Citing a "material risk" to financial stability arising from a rout in British government bonds - known as gilts - the BoE said it would buy up to 5 billion pounds ($5.51 billion) of index-linked debt per day, starting Tuesday. Rather than increase the existing commitment to buy up to 10 billion pounds of gilts each day, as announced on Monday, the purchases will run alongside existing purchases of long-dated conventional bonds, now worth up to 5 billion pounds. British inflation-linked gilts - known as linkers - suffered a massive sell-off on Monday, despite the BoE doubling the maximum size of its buy-backs of conventional long-dated gilts. "Dysfunction in this market, and the prospect of self-reinforcing 'fire sale' dynamics pose a material risk to UK financial stability." To halt freefalling prices, the BoE was forced to pledge to buy as much as 65 billion pounds ($73.63 billion) of long-dated government bonds, known as gilts.

☆ BoE should extend bond buying to Oct 31 or "possibly beyond"-pensions trade body
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +2 min

LONDON, Oct 11 (Reuters) - The Bank of England should consider continuing an emergency bond-buying programme aimed at stabilising the market for UK government debt to October 31 "and possibly beyond", the Pensions and Lifetime Savings Association said on Tuesday. "...many feel it should be extended to the next fiscal event on 31 October and possibly beyond, or if purchasing is ended, that additional measures should be put in place to manage market volatility". The BoE on Monday doubled the maximum size of the buybacks and on Tuesday expanded the programme to include inflation-linked gilts, a move welcomed by the PLSA. read more read more"We continue to encourage all pension funds and service providers to use this period to take further steps to rebalance portfolios and ensure necessary measures are in place to protect their strategies in uncertain times," the trade body said. ($1 = 0.9061 pounds)($1 = 0.9057 pounds)Register now for FREE unlimited access to Reuters.com RegisterReporting by Carolyn Cohn, editing by Sinead CruiseOur Standards: The Thomson Reuters Trust Principles.

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