With inflation in the country raging at 9.9%, perhaps the UK entered a recession already, which prompted the Bank of England (BoE) to act quickly to stem a further crisis by suspending its program to sell gilts and instead buy long-dated bonds. Welt’s Holger Zschaepitz took to Twitter on September 28 to show the implications such action had on the 10-year UK yields, which dropped 40 basis points (bps).
Pension funds squeeze
The ‘mini-budget’ experiment caused numerous pension funds in the UK to issue urgent demands for more cash to meet margin calls, as the UK government bond prices squeezed the 60/40 portfolio where bonds were supposed to protect portfolios against inflation and interest rate risk. This turmoil caused pension funds to sell bonds to meet solvency issues, exacerbating the problem, while BoE stated that it would carry out temporary purchases of long-dated UK government bonds from September 28 onwards for as long as needed to stabilize the markets.
Whose fault is it?
Meanwhile, market participants seem to blame UK Chancellor Kwasi Kwarteng’s tax cuts, while the Treasury blamed broader global market volatility. It looks like the UK might be pushed into higher and faster rate hikes from this moment on to bring much-needed stability to the markets. Only time will tell how far and how fast BoE has to go to return investors’ optimism in UK markets. Finally, as the Bank of England struggles with the falling pound, its Deputy Governor, Jon Cunliffe, also asserted that blockchain adoption across all markets is too complex to integrate. Buy stocks now with Interactive Brokers – the most advanced investment platform Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
