Bond and gilt markets slowly returning to normal?
Posted: February 7th, 2022, 10:57 am
The BOE got off the fence this month and determined that they do intend to act on inflation rather than keep telling us it is transitory.
5 members voted for a rise to 0.5%, 4 members voted for a rise to 0.75%.
The committeed agreed to unwind the £20b of QE on corporate bonds by ceasing to reinvest anything maturing and to sell the rest by the end of 2023.
Also, the committee's projections for inflation are based on a market implied path for the base rate to rise to 1.5% by the middle of 2023.
I am a little shocked to read a market implied base rate of 1.5% by the middle of next year. That's going to put a real squeeze on households, will reduce disposal income and should help to pull inflation down. As an investor of course I'm delighted. I'd much rather have interest rates of 1.5% than 0.1% albeit overall I'd much rather RPI wasn't 7%.
Prices of bonds, PIBS and Prefs have come off somewhat as a result. To me they still look priced too high but at least they are now a price I'm interested in looking at. It would probably take some persusion to get me to buy the fixed coupon prefs and PIBS but the short to medium duration bonds might tempt me if they continue to fall.
At least it feels like I have some options now rather than feeling every asset class I look at is over-priced.
5 members voted for a rise to 0.5%, 4 members voted for a rise to 0.75%.
The committeed agreed to unwind the £20b of QE on corporate bonds by ceasing to reinvest anything maturing and to sell the rest by the end of 2023.
Also, the committee's projections for inflation are based on a market implied path for the base rate to rise to 1.5% by the middle of 2023.
I am a little shocked to read a market implied base rate of 1.5% by the middle of next year. That's going to put a real squeeze on households, will reduce disposal income and should help to pull inflation down. As an investor of course I'm delighted. I'd much rather have interest rates of 1.5% than 0.1% albeit overall I'd much rather RPI wasn't 7%.
Prices of bonds, PIBS and Prefs have come off somewhat as a result. To me they still look priced too high but at least they are now a price I'm interested in looking at. It would probably take some persusion to get me to buy the fixed coupon prefs and PIBS but the short to medium duration bonds might tempt me if they continue to fall.
At least it feels like I have some options now rather than feeling every asset class I look at is over-priced.