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☆ Interest rate delusion may be biggest error of all
▼ + stars: | 2022-10-06 | by ( Edward Chancellor | ) www.reuters.com time to read: +7 min

The false idea exposed by the current bear market is that interest rates would remain low indefinitely. The belief that interest rates would remain at permanently low levels could prove the most costly error of all. The lowest-ever interest rates gave us the “Everything Bubble”. Now that interest rates are rising, everything is at risk. The pension funds faced margin calls on their loans, and the bond market seized up as they scrambled to raise cash.

☆ UK gilt yields rise after plunging on BoE action
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +2 min

Thirty-year gilt yields , which surged to a 20-year high above 5% on Wednesday before dropping by more than 100 basis points after the BoE intervention, were up about 2 basis points at 3.96% at 0904 GMT. Twenty-year gilt yields rose about 6 basis points (bps) to 4.20%, having earlier hit a high of 4.309%, also reversing only a small part of their fall on Wednesday. Register now for FREE unlimited access to Reuters.com RegisterShorter-dated gilt yields rose more strongly with two-year yields adding about 13 bps to 4.38%, having risen as high as 4.48%, though they remained well below a post-2008 peak of 4.761% hit on Tuesday. Theo Chapsalis, head of UK rates strategy at Morgan Stanley, forecast on Thursday that the BoE action would help 10-year yields stabilise at a level below 4.1%. At its first auction on Wednesday, it accepted offers of 1.025 billion pounds of gilts out of 2.587 billion pounds of offers submitted.

Sept 29 (Reuters) - Oil prices fell on Thursday after gaining more than $3 in the prior session, with a strong dollar capping oil demand and concerns over the faltering global economic outlook clouding market sentiment. Register now for FREE unlimited access to Reuters.com RegisterHowever, the dollar index trended upward again on Thursday, dampening investor risk appetite and stoking fears of a global recession. Goldman Sachs cut its 2023 oil price forecast on Tuesday, citing expectations of weaker demand and a stronger U.S. dollar, but said global supply disappointments reinforced its long-term bullish outlook. Citi economists have lowered their China GDP forecast from 5% year-on-year growth to 4.6% for the fourth quarter of 2022. "Stringent zero-COVID measures and a weak property sector continue to cloud growth prospects," Citi analysts wrote in a note on Wednesday.

☆ Sterling slippery, stocks stalling as BoE boost fades
▼ + stars: | 2022-09-29 | by ( Tom Westbrook | ) www.reuters.com time to read: +4 min

S&P 500 futures fell 0.2%. European futures rose 0.6% and FTSE futures lifted 0.3%. The U.S. dollar index had its worst session in 2-1/2 years on Wednesday, recoiling from record highs. The Australian dollar fell 0.8% to $0.6470. Brent crude futures fell 0.8% to $88.62 a barrel.

☆ The Banker and Bailey Circus
▼ + stars: | 2022-09-29 | by ( The Editorial Board | ) www.wsj.com time to read: 1 min

The Bank of England’s decision Wednesday to buy British bonds is being portrayed as a rebuke to new Prime Minister Liz Truss ’s economic program, and BOE Governor Andrew Bailey may have meant it to be. The intervention calmed bond and equity markets, at least for now, though at the cost of showing again that central bankers are easily spooked into rescue mode. Investors are cheering their success in coaxing the Bank of England back into the market to underwrite bond prices. On Monday the BOE issued a statement saying it would evaluate market movements “at its next scheduled meeting,” which is in November. Two days later it had forgotten all that and said it would “carry out temporary purchases” of longer-term gilts “to restore orderly market conditions.”

☆ Stocks bounce but sterling slippery after BoE buys bonds
▼ + stars: | 2022-09-29 | by ( Tom Westbrook | ) www.reuters.com time to read: +3 min

The Bank of England said it will buy as much as £5 billion ($5.4 billion) a day of long-dated government bonds until Oct. 14. For one, this re-stimulation will lift, not quell UK inflation, and that's bad for bonds and sterling." The mood gave pause to the U.S. dollar's march higher and the dollar index had its worst session in 2-1/2 years as the greenback recoiled from lofty heights. The dollar index was up 0.1% to 113.12, within striking distance of Wednesday's 20-year high of 114.78. ($1 = 0.9252 pounds)Register now for FREE unlimited access to Reuters.com RegisterEditing by Shri NavaratnamOur Standards: The Thomson Reuters Trust Principles.

Sept 29 (Reuters) - Oil prices fell in early Asian trade on Thursday as a strong dollar and economic woes outweighed optimism over consumer demand. Brent crude futures fell 59 cents, or 0.7%, to $88.73 per barrel by 0016 GMT while U.S. crude futures fell by 54 cents, or 0.7%, to $81.59. Both benchmarks rebounded in the prior two sessions amid volatile trade after reaching nine-month lows this week. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies. Register now for FREE unlimited access to Reuters.com RegisterReporting by Laura SanicolaOur Standards: The Thomson Reuters Trust Principles.

☆ Euro zone bond yields rise, focus on UK gilts, inflation data
▼ + stars: | 2022-09-29 | by ( Stefano Rebaudo | ) www.reuters.com time to read: +3 min

Sept 29 (Reuters) - Euro zone government bond yields rose on Thursday as German data shifted the market focus to surging inflation, while gilt investors resumed selling after the Bank of England (BoE) stepped in to quell a storm the day before. Register now for FREE unlimited access to Reuters.com RegisterGermany's 10-year government bond yield , the benchmark of the bloc, rose 11 basis points (bps) to 2.25%. The UK 10-year gilt yield rose 16 bps to 4.16%, after falling almost 50 bps the day before. Italy's 10-year government bond yield rose 9 bps to 4.67%, after hitting its highest level since February 2013 at 4.927% the day before. Analysts said that while Italian politics do not affect the bond market much, the main worries for Italian bond investors are a possible quantitative tightening by the ECB and a further rise in inflation across the euro area.

☆ Sterling, euro slip back on persistent UK fiscal angst despite BOE announcement
▼ + stars: | 2022-09-29 | by ( ) www.cnbc.com time to read: +2 min

In this photo illustration, British GDP £1 coins and bank notes are pictured on September 25, 2022 in Bath, England. The U.K. currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BOE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. Sterling was 0.51% lower at $1.0831 as of 1200 GMT, returning some of the previous session's 1.41% rally. The euro weakened 0.32% to $0.97065, following Wednesday's 1.51% surge, the biggest since early March. New Zealand's currency dropped 0.42% to $0.5706, following a 1.7% surge in the previous session.

☆ Morning Bid: Dysfunction and intervention
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +5 min

Amid all the chaos in British bond markets, the forced intervention by the Bank of England to buy gilts has given some investors a crumb of comfort about the limits of central bank tightening. Cold comfort maybe, but enough to drag bond yields back and lift stocks briefly around the world. While 30-year gilt yields steadied just below 4% on Thursday after their 100bp swoon the previous day, the pound was sliding again and UK midcap stocks dropped. read moreEasing inflation in Spain was better news read more . Market leader Inditex (ITX.MC), the owner of Zara, slipped 2.2%, while the wider STOXX retailers index <.SXRP> slid 4.3%.

☆ London stocks slide as fiscal policy concerns weigh; Next drops
▼ + stars: | 2022-09-29 | by ( Johann M Cherian | ) www.reuters.com time to read: +2 min

The blue-chip FTSE 100 (.FTSE) was down 1.8%, while the more domestically-oriented FTSE 250 (.FTMC) shed 2.1%, by 0823 GMT. Shares of Next (NXT.L) slid 8.7% after it cut profit and sales forecasts, saying August trading was below expectations and cost of living pressures were set to rise in the coming months. It's indicative that the tighter monetary policy gets the far more damage it will do to UK consumers, UK spending and the UK economy." The FTSE 100 has lost 6.6% so far this year. Among other stocks, British American Tobacco (BATS.L) fell 3.1% in ex-dividend trading, while Synthomer (SYNTS.L) tanked 32.6% after it lowered its annual profit outlook.

☆ Wall Street futures resume fall as economic worries weigh
▼ + stars: | 2022-09-29 | by ( ) www.reuters.com time to read: +2 min

Megacap growth names such as Amazon.com Inc , Apple Inc (AAPL.O), Microsoft Corp , Meta Platforms Inc and Tesla Inc (TSLA.O) lost between 0.8% and 1.6% in premarket trading. ET, Dow e-minis were down 225 points, or 0.76%, S&P 500 e-minis were down 31.25 points, or 0.84%, and Nasdaq 100 e-minis were down 117.75 points, or 1.02%. Investors will be watching for weekly jobless claims, which is expected to rise by 2,000 to 215,000 last week. A second estimate of the government last month had shown the economy contracted at 0.6%, a more moderate pace than initially thought. Register now for FREE unlimited access to Reuters.com RegisterReporting by Susan Mathew in Bengaluru; Editing by Anil D'SilvaOur Standards: The Thomson Reuters Trust Principles.

☆ Sterling slips back with euro on persistent UK fiscal angst despite BoE bond-buying
▼ + stars: | 2022-09-29 | by ( Kevin Buckland | ) www.reuters.com time to read: +2 min

Boards displaying buying and selling rates are seen outside of currency exchange outlets in London, Britain, July 31, 2019. The UK currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. The euro weakened 0.32% to $0.97065, following Wednesday's 1.51% surge, the biggest since early March. New Zealand's currency dropped 0.42% to $0.5706, following a 1.7% surge in the previous session. Register now for FREE unlimited access to Reuters.com RegisterReporting by Kevin Buckland Editing by Shri NavaratnamOur Standards: The Thomson Reuters Trust Principles.

☆ Pension fund panic led to Bank of England's emergency intervention: Here's what you need to know
▼ + stars: | 2022-09-29 | by ( Elliot Smith | ) www.cnbc.com time to read: +7 min

A central narrative emerging from the U.K.'s precarious economic position is the apparent tension between a government loosening fiscal policy while the central bank tightens to try to contain sky-high inflation. Monetary policy is trying to mop-up after the milk was spilt," Turner said. Anything less, and there will likely be more turbulence for the gilt market, and the pound, in the coming weeks," he added. Following the Bank's bond market intervention, ING's economists expect a little more sterling stability, but noted that market conditions remain "febrile." She suggested the market would have benefitted from the government "blinking first" in the face of the market backlash to its policy agenda, rather than the central bank.

☆ The Bank of England is snapping up bonds to stabilize debt markets — but that goes against its aim of stemming inflation. Here's what you want to know.
▼ + stars: | 2022-09-29 | by ( Phil Rosen | ) www.businessinsider.com time to read: +6 min

Friday eve means the weekend's just around the corner, but it seems like nobody told the British bond market. The balancing act, at worst, could mean a calamity for the British economy and prolonged volatility in markets. And at best, policymakers thread the needle and stabilize markets, tame inflation, and regain the confidence of traders and everyday folks dealing with a tough economy. A weaker currency means imports get more expensive, and higher bond yields mean government borrowing gets more expensive. What will it take for bond market traders to regain confidence in the UK debt market?

And clearly, with the strong foundation we have, I see it as being as an opportunity for us." read moreM&G's assets under management and administration dropped 6% in the first half of 2022 to 349 billion pounds, the group reported in August, although it posted net inflows of cash from clients totaling 1.2 billion pounds over the same period. But shares have tumbled 28% since then, compared with a 10% fall in the broader FTSE 100 index. The appointment of Rossi, who will earn a base salary of 875,000 pounds plus incentives, has been approved by Britain's financial regulators the PRA and FCA, M&G said. Foley, who led M&G's split from parent Prudential in 2019, announced his intention to retire in April.

Yet the government’s unfunded mini-budget on Sept. 23 stoked fears of runaway inflation, causing gilt yields to soar. The mess left pension funds scrambling to raise margin, and they wound up doing so by selling their most liquid asset – gilts. And the more the pension funds sold, the more gilt prices fell, causing a vicious spiral and fears the funds could run out of cash. By the time Governor Andrew Bailey intervened, certain pension funds had been hit with margin calls as high as 100 million pounds. Ahead of the BoE’s announcement, strategists said the 2.1 trillion pound gilt market was seizing up, with very poor liquidity and pricing quality being a clear sign of market dysfunction.

☆ The Bank of England was put in a terrible position, says Harvard's Jason Furman
▼ + stars: | 2022-09-29 | by ( ) www.cnbc.com time to read: 1 min

Share Share Article via Facebook Share Article via Twitter Share Article via LinkedIn Share Article via EmailThe Bank of England was put in a terrible position, says Harvard's Jason FurmanJason Furman, professor at the Harvard Kennedy School of Government and former CEA chair, joins CNBC's 'Squawk Box' to react to the Bank of England's move to buy more long-term bonds to stabilize the market for gilts.

☆ Morning Bid: U-turn sparks huge turn
▼ + stars: | 2022-09-28 | by ( ) www.reuters.com time to read: +2 min

Take Britain, where a government budget on Friday sparked a run on the pound and gilts, accelerated the downdraft across world markets, before prompting an astonishing policy U-turn from the Bank of England on Wednesday. This unleashed a wave of buying across British assets - the 30-year gilt yield sank a record 100 basis points and sterling rose 1.5% - and triggered a pent-up recovery across world markets. The relief was palpable: world stocks and the S&P 500 snapped six-day losing streaks, with the S&P 500 jumping around 2%. Its tinkering at the edges seems to have failed, so will it soon have to take more forceful action to support the yuan? They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE warned. One source at the Treasury said Kwarteng would not resign, and the government would not reverse its policy. A second person familiar with the situation said Truss still backed Kwarteng and they would announce further economic reforms soon. One source at the meeting said Kwarteng had asked the assembled finance bosses what they could do to calm markets. U.S. bond giant PIMCO said it would have less confidence in sterling than it did before last Friday's announcement.

"There will be impacts, there’s correlations ... some market volatility, and then how it weighs in the global growth picture," said Paul Malloy, head of municipals at Vanguard. The wild swings in the pound have ricocheted across currency markets, where volatility was already climbing. According to the widely watched Deutsche Bank Currency Volatility Index , volatility across currencies on Wednesday hit its highest level since the March 2020 COVID-19- induced market meltdown, jumping more than 20% from levels last week. Closely followed indicators of financial stress remain contained. U.S. stock market volatility as measured by the "fear index," the VIX (.VIX), has also climbed in recent days but remains below its 2022 highs.

The BoE said it would temporarily buy long-dated bonds - linked most closely to workers' pensions and home loans - in light of a surge in 30-year UK bond yields above 5%, their highest since 2002. Register now for FREE unlimited access to Reuters.com RegisterEuropean government bonds got a lift from the surge in gilts. "The surge in bond yields threatens the housing market and broader economy. Wall Street opened higher, with the S&P 500 Index (.SPX) up about 1% after it fell to a two year low on Tuesday. Scott Wren, Senior Global Market Strategist at Wells Fargo Investment Institute, said markets may already be pricing in future pain.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the British central bank said. By 2:48pm (1348 GMT) it was trading down 0.5% at $1.0679, a fall of 12% in the last three months. The BoE said it would return to its plan to sell bonds and its launch was only postponed until the end of October. RESTORE ORDEROn Monday the BoE said it would not hesitate to raise interest rates and was monitoring markets "very closely". But the slide in bond prices continued unabated on Wednesday, prompting the BoE to make its move.

The BoE said it would temporarily buy long-dated bonds - linked most closely to workers' pensions and home loans - in light of a surge in 30-year UK bond yields above 5%, their highest since 2002. The pound briefly fell by as much as 1% after the BoE's announcement, while UK stocks cut losses, which in turn helped the broader European equity market avoid deeper falls. "The surge in bond yields threatens the housing market and broader economy. The IMF and the U.S. Treasury waded in yesterday in fear of global contagion from gilts to other markets," he said. European government bonds got a lift from the surge in the value of UK gilts.

REUTERS/Dado Ruvic/IllustrationLONDON, Sept 28 (Reuters) - Borrowing costs for UK firms are soaring, with sterling corporate bond prices headed for their biggest monthly fall since the 1990s as fallout from the British government's "mini-Budget" grows. That, according to Vanguard credit portfolio manager Sarang Kulkarni, in turn helped ease conditions slightly in the investment grade bond market. Yields and bond prices move inversely. The sterling corporate bond market, much smaller and less liquid than the equivalent euro or U.S. dollar markets, is driven largely by moves in UK gilts, which have slid in value in recent days. He said that liquidity in the corporate sterling market - not great at the best of times - was looking "almost non-existent" right now.

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