Gilts Slammed After Bank of England Meeting
31 January, 2020
Gilts were slammed by the BoE meeting, which turned out to be a modestly hawkish-hold. Vote was 7-2 to keep stable. Bank spoke of rebound in global growth and bounce in the UK. The next cut is now only fully priced for December. There was a decent afternoon global bond market rally on the usual coronavirus fears. Unfortunately, it’s difficult to understand why the market suddenly rallied. Thursday it seemed to start when the number of virus cases overtook SARS. Gilt curve saw a heavy bearish flattener, with the 2y up 6bp and 10y up 3bp by the close – it had been more significant immediately after the statement. The actual press conference caused little reaction as Carney added very little and possibly because it was his last display. He did say that the most recent surveys are the strongest and that the prospect of modest rate hikes are further out. One phrase in the report attracted trader attention “Reduced Brexit uncertainties, and the easier stance of fiscal policy, might also be pushing up on UK equilibrium interest rates, making the existing policy setting more accommodative, all else equal"
As expected the Bank of England will start another round of asset purchases to reinvest its upcoming redeeming Gilt. These start on March 9 and continue the usual pattern.
The Bank will continue, normally, to conduct three auctions a week. Gilts with a residual maturity of 3-7 years will be purchased on Mondays; those with a residual maturity of over 15 years will be purchased on Tuesdays; and those with a residual maturity of 7-15 years will be purchased on Wednesdays. Size of auctions will initially be £1,456mn
There won’t be a 11 March purchase because of the Budget