BoE Decision to buy Government Bonds

NannaH

How does ‘shorting’ the £ work in practice? 

  How do traders make the £ actually fall?  

Type_45

Now that the UK bond market has collapsed and had to be bailed out (for now), how might bond markets around the world be fairing?

InvesterJones

Type_45 said:

Now that the UK bond market has collapsed and had to be bailed out (for now), how might bond markets around the world be fairing?

Depends if they're using Trussonomics or not.

masonic

aroominyork said:

Once (if...) things are stable, how long will it take to drip feed the long-dated gilts back into the market?

They could sell from anywhere along the yield curve. They are a pretty significant holder of gilts of all maturities from all the QE they'd been doing in the lead up to this crisis. Up until now they've just been letting their existing holdings naturally mature without rolling the proceeds back into the market, which is a form of passive tightening.

coastline

The Black shaded areas represent BOE holdings . Together with banks and building societies its way of half.

gilt-holdings-by-sector.png.webp (1080×612) (economicshelp.org)

1.10 and climbing ? Wonder if it gets on the tele ?

British Pound, GBPUSD Advanced Chart - (XTUP) GBPUSD, British Pound Stock Price - BigCharts.com (marketwatch.com)

Dollar Index falling ?  We can only wait and see. Inflation global slowdown etc.

Fd1QD2kaAAE1WfS (900×540) (twimg.com)

redpete

NannaH said:

How does ‘shorting’ the £ work in practice? 

  How do traders make the £ actually fall?  

It happens when you sell something you don't own in the hope of buying it at a cheaper price before you have to do the original deal.

Let's say that today's price of £1 is $1.50, I promise to sell you £10 for $14 but the deal will only be completed in two weeks' time.  I'm gambling / calculating that some time before the two weeks is up I will be able to buy £10 for $13.  At the end of the two weeks I've bought and sold £10 and ended up with $1 that I didn't have before.

My understanding is that your offer of £10 for $14 makes people think that the £ is overpriced at $1.50 and therefore they think they ought to sell their £s before it drops any more, creating the downward pressure on the £.

If you have insider knowledge that economic policy is about to change and cause the £ to be worth less, then it makes your short-selling gamble a lot safer.

bostonerimus

Right now we are at the mercy of global energy prices and rising gilt and interest rates. We can't do much about them, particularly when the government is injecting money into the economy in pursuit of growth and the BoE is trying to take it out of the economy by raising rates to control inflation. This is why we should control the things we can like what we spend and the personal debt load we carry. I've always advocated putting some money towards extra mortgage payments, more as a diversifier than anything else - I put it in the "fixed income" allocation. Right now people looking to refinance will be glad of the amounts they paid off at 2%. I worry about people with interest only mortgages as rates rise and maybe house prices start to fall. That's a bit of a time bomb IMO.

peter021072

The mini-budget introduced tax cuts and increased spending. Investors know the government will need to increase borrowing to meet these commitments and had little faith that the tax cuts would stimulate the economy to compensate, so they triggered a large-scale UK government bond sell-off, which increases the cost of borrowing even more. The BOE intervened by buying UK government bonds to prevent further falls because pension funds might become insolvent. 

Officials in the Financial Services Group of the Treasury were not involved because they were on a jolly at the Oval cricket ground during the turbulent morning.

Some have made comparisons with Black Wednesday in 1992 when there was a run on the pound.