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Governor of the Bank of England, Andrew Bailey, speaks during the Bank of England's financial stability report news conference, at the Bank of England, London August 4, 2022. And what they can't allow is for the bond market to be overly volatile," said Iain Stealey, CIO of fixed income at JPMorgan Asset Management. U.S. and German 30-year borrowing costs are up just 16 and 33 bps respectively , this month and the contrast highlights the scale of selling gripping Britain's bond market. The unprecedented bond market moves triggered hefty collateral calls on hedging strategies that many funds are still struggling to meet. Bond market volatility has also raised doubts about whether the BoE can press ahead with its plan to sell some of its bond holdings, a process known as quantitative tightening (QT).

☆ Britain's bond market turmoil
▼ + stars: | 2022-10-12 | by ( ) www.reuters.com time to read: +3 min

The country's financial markets have been in turmoil since finance minister Kwasi Kwarteng last month unveiled tax cuts with no details of how they would be paid for. * The Bank of England has been forced into emergency bond-buying to stem a sharp sell-off in Britain's 2.1 trillion pound ($2.3 trillion) government bond market that threatens to wreak havoc in the pension industry and increase recession risks. * The BoE interventions have highlighted a growing segment of Britain's pensions sector - liability-driven investment. MAJOR PLAYERS* BoE governor Bailey said on Tuesday on the sidelines of an IMF meeting in Washington that BoE support for the pension funds would end as planned on Friday. MARKET REACTION* The 20- and 30-year UK government bond yields both hit their highest since 2002 at 5.195% and 5.1% respectively, passing above 5% for the first time since the BoE began buying bonds on Sept. 28 to calm the turmoil.

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 pensions: There's no quick fix for the market mess
▼ + stars: | 2022-10-12 | by ( Julia Horowitz | ) edition.cnn.com time to read: +7 min

Almost 20 days after Finance Minister Kwasi Kwarteng unveiled his much-criticized plan to jumpstart the economy, sparking an investor revolt, the UK bond market and the British pound remain under huge stress — despite three emergency interventions by the central bank. The country’s central bank is in a difficult position. It’s trying to restore the UK government’s lost credibility in markets, though its toolkit isn’t designed for this kind of effort. “Investment consultants are working feverishly.”Ongoing volatility in the bond market is further complicating those efforts, as rising yields once again put hedging strategies at risk. Yet as bond yields keep rallying, not everyone is convinced that approach makes sense.

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 halt to the BoE's bond-buying might come too soon for some pension funds. But a BoE spokesperson said it had been made "absolutely clear in contact with the banks at senior levels" that the Friday deadline would hold. On Wednesday, it said it was "closely monitoring" liability-driven investment (LDI) funds, which are key to pension funds, ahead of Friday's deadline.

☆ 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.

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.

☆ U.S. dollar rises, yen not far from 24-year trough that prompted intervention
▼ + stars: | 2022-10-11 | by ( Gertrude Chavez-Dreyfuss | ) www.reuters.com time to read: +4 min

"I can see it propelling the dollar higher still, even though people think it's a crowded trade. Overall, dollar sentiment remained positive as worries about rising interest rates and geopolitical tensions unsettled investors, while the yen hovered near the level that prompted last month's intervention. In afternoon trading, the U.S. dollar index rose 0.2% to 113.25, not far from a 20-year high of 114.78 it touched late last month. The dollar touched a three-week high against the yen of 145.895 , just shy of the 24-year peak of 145.90 hit before the Japanese government stepped in to prop it up three weeks ago. Meanwhile, the risk-sensitive Australian dollar hit a 2-1/2-year low of $0.6248 and was last down 0.4% at US$0.6270.

LONDON, Oct 11 (Reuters) - The U.S. dollar edged back towards September's multi-year highs on Tuesday as worries about rising interest rates and geopolitical tensions unsettled investors, while the yen hovered near the level that prompted last month's intervention. "There are the Fed minutes and U.S. CPI this week that will be quite important for strengthening hawkish Fed expectations and could continue to support the dollar," Pesole added. "It's not that easy to gauge at which level the Bank of Japan will intervene," ING's Pesole said. "It's mostly a matter of how orderly the depreciation in the yen is," Pesole added, although he doubts the BoJ would be comfortable with the yen at 150 per dollar. Adding to the BoE's headaches was labour market data that showed Britain's unemployment rate fall to its lowest since 1974 in the three months to August, but the drop was driven by a record jump in the number of people leaving the labour market.

☆ Dollar gains as geopolitical worries, rate hike fear rattle market
▼ + stars: | 2022-10-11 | by ( Ankur Banerjee | ) www.reuters.com time to read: +3 min

"This renewed wall of worries is likely to keep the dollar supported," he said, but cautioned that there could be a bit of a relief rally in risky assets. U.S. dollar index was up 0.239% at 113.34, inching toward the 20-year high of 114.78 it touched late last month. Fear of intervention has held the yen firm in recent weeks, but as it drifts back to multi-decade lows analysts aren't convinced it can hold the line. The risk-sensitive Australian dollar made a 2-1/2 year low of $0.6275 on Monday and hovered at $0.6267 on Tuesday. Yields on the 30-year bond leapt as much as 11 basis points to the highest in almost nine years at 3.956%.

☆ Dollar gains, yen flirts with intervention levels
▼ + stars: | 2022-10-11 | by ( Ankur Banerjee | ) www.reuters.com time to read: +2 min

Oct 11 (Reuters) - The dollar loomed large over fragile financial markets on Tuesday, with worries about rising interest rates, global growth and geopolitical tensions unsettling investors, while the yen was testing levels that have prompted official intervention. The yen hit 145.80 per dollar overnight, just 10 pips short of the 24-year trough it made before the Japanese government stepped in to prop it up three weeks ago. The risk-sensitive Australian dollar made a 2-1/2 year low of $0.6275 on Monday and hovered at $0.6296 early on Tuesday. "Our expectation for the world economy to enter recession next year is consistent with further gains in the dollar," said Commonwealth Bank of Australia strategist Carol Kong. U.S. dollar index was up 0.053% at 113.12, not far off the 20-year high of 114.78 it touched late last month.

☆ 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.

☆ 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.

☆ 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.

☆ Morning Bid: British bond burn
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +5 min

read moreAhead of the open, 10-year U.S. Treasury yields were again flirting with the year's highs above 4% and global stocks (.MIWD00000PUS) were heading for new 2022 lows. Key developments that should provide more direction to U.S. markets later on Tuesday:* U.S. Sept NFIB small business index. * International Monetary Fund publishes World Economic Outlook and Global Financial Stability Report at annual IMF/World Bank meeting in Washington. * Bank of England Governor Andrew Bailey, BoE deputy governor Jon Cunliffe, Swiss National Bank chief Thomas Jordan, European Central Bank chief economist Philip Lane, ECB board member Fabio Panetta, ECB bank supervisor Andrea Enria speak in United States. Long Gilt Yields SoarRegister now for FREE unlimited access to Reuters.com RegisterBy Mike Dolan, editing by Ed Osmond, <a href="mailto:mike.dolan@thomsonreuters.com" target="_blank">mike.dolan@thomsonreuters.com</a>.

☆ UK bond market moves are dramatic, confusing, and analysts think it may get worse
▼ + stars: | 2022-10-11 | by ( Elliot Smith | ) www.cnbc.com time to read: +3 min

Monday's sharpest moves were concentrated in the index-linked gilt market — illiquid bonds where payouts to bondholders are benchmarked in line with the U.K. retail price index. The scale of the rise in bond yields — which move inversely to prices — prompted the Bank to expand its emergency bond purchase program on Tuesday to include index-linked gilts until the deadline on Friday. In a statement, the Bank said dysfunction in the index-linked gilt market posed a "material risk to U.K. financial stability." Analysts broadly expect volatility to continue in the coming weeks, at least until Finance Minister Kwasi Kwarteng's make-or-break fiscal policy announcements on Oct. 31. Stuart Cole, head macro economist at brokerage Equiti Capital, said the sequence of announcements from the Bank of England since its initial intervention may suggest that it is starting to "lose control" of the gilt market.

☆ 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.

☆ 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.

☆ Morning Bid: Burning bridges
▼ + stars: | 2022-10-11 | by ( ) www.reuters.com time to read: +2 min

A look at the day ahead in European and global markets from Tom WestbrookBarely Tuesday and markets and the world seem to be sweeping unnervingly past points of no easy return. Register now for FREE unlimited access to Reuters.com RegisterNuclear-armed North Korea says it has no interest in talks or dialogue and has fired seven test missiles since Sept. 25, apparently in simulation of the destruction of the south. Meanwhile Britain's attempts at mending fences with markets over fiscal spending plans are faring badly. The Bank of England doubled its bond buying caps as its emergency gilt market support programme nears its end on Friday. Finance minister Kwasi Kwarteng promised to reveal some details of longer-term tax and spending plans at the end of the month.

☆ 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.

☆ 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.

☆ Markets won’t go back to normal until the Fed stops hiking rates
▼ + stars: | 2022-10-11 | by ( Nicole Goodkind | ) edition.cnn.com time to read: +8 min

What’s happening: Markets and the Federal Reserve have conflicting temperaments, said Blinder. Markets are capricious while the Fed remains calm. Markets on average, said Blinder, overreact to inflation-related data by a factor of three to 10 times more than they should. The central bank announced Monday that it would provide extra support to UK markets, beefing up its efforts to ensure financial stability, reports my colleague Julia Horowitz. The research is especially relevant today as rapid interest rate hikes to combat inflation have sent markets into turmoil, drawing comparisons to 2008.

☆ 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.

☆ UK's Kwarteng, seeking to calm markets, brings forward budget date
▼ + stars: | 2022-10-10 | by ( Andy Bruce | ) www.reuters.com time to read: +4 min

Kwarteng said the new date for his medium-term fiscal statement would allow the independent Office For Budget Responsibility (OBR) enough time to assess updates to official data and for a full forecast process to take place. British Chancellor of the Exchequer Kwasi Kwarteng speaks during Britain's Conservative Party's annual conference in Birmingham, Britain, October 3, 2022. Junior Treasury minister Andrew Griffith said market practitioners he had spoken to received news of the new date for the fiscal statement warmly. HALLOWEENThe new date for the fiscal plan leaves Kwarteng and Truss with little more than two weeks to settle divisions in her cabinet over cuts to government spending. Truss was no longer expected to appoint Antonia Romeo to run the Treasury, the FT said, citing senior government figures.

Mel Stride, a lawmaker who chairs the Treasury Committee in the lower house of parliament and had criticised Scholar's departure, said the appointment would help reassure investors. The moves came as Kwarteng prepared to head to Washington this week with International Monetary Fund criticisms of Britain's new policy direction ringing in his ears. British Chancellor of the Exchequer Kwasi Kwarteng speaks during Britain's Conservative Party's annual conference in Birmingham, Britain, October 3, 2022. Kwarteng said the new date for his medium-term fiscal statement would give the independent Office For Budget Responsibility (OBR) enough time to carry out a full forecast. The new date for the fiscal plan leaves Kwarteng and Truss with little more than two weeks to settle divisions in her cabinet over cuts to government spending.

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