Anyone buying gilts right now?

masonic

Altior said:

As I posted elsewhere, the BoE were (quite unbelievably) also dumping gilts on the market.

Yes, this seems to have been very much overlooked (including by me). The BoE seems to be persevering with a very aggressive and probably damaging QT policy. The plan is to dump £100bn in bonds into the market this year. Adding to the £150bn of new bond issues planned. Of course that is going to depress bond prices as there is unlikely to be sufficient appetite from buyers without making it a really good deal. The money to buy these bonds is going to have to be pulled from other productive places.

Altior

Interesting letter! Not clear the MPC knew what the LDI risk was, or even what they were...

Altior

The 'mini budget' was 23rd September, the next day. Now call me cynical....

Altior

masonic said:

Altior said:

As I posted elsewhere, the BoE were (quite unbelievably) also dumping gilts on the market.

Yes, this seems to have been very much overlooked (including by me). The BoE seems to be persevering with a very aggressive and probably damaging QT policy. The plan is to dump £100bn in bonds into the market this year. Adding to the £150bn of new bond issues planned. Of course that is going to depress bond prices as there is unlikely to be sufficient appetite from buyers without making it a really good deal. The money to buy these bonds is going to have to be pulled from other productive places.

Bailey was even telling the market which day they were planning to dump them. Of course, they had to u turn a few days later and start buying them instead, to keep some of the institutions with massive LDI liabilities solvent. 

masonic

Altior said:

masonic said:

Altior said:

As I posted elsewhere, the BoE were (quite unbelievably) also dumping gilts on the market.

Yes, this seems to have been very much overlooked (including by me). The BoE seems to be persevering with a very aggressive and probably damaging QT policy. The plan is to dump £100bn in bonds into the market this year. Adding to the £150bn of new bond issues planned. Of course that is going to depress bond prices as there is unlikely to be sufficient appetite from buyers without making it a really good deal. The money to buy these bonds is going to have to be pulled from other productive places.

Bailey was even telling the market which day they were planning to dump them. Of course, they had to u turn a few days later and start buying them instead, to keep some of the institutions with massive LDI liabilities solvent. 

It probably needs to be reigned in again this time too. It's all a charade to hide the fact the BoE was creating money to lend to the govt. Those bonds are obviously part of the national debt and need dealing with eventually, but dumping them at this rate pulls money out of the private sector, slows growth, and if not a reversal, could drive a recession. Either way, bond prices then go back up, and someone makes a killing trading it.

Altior

There will surely be significant political pressure for the BoE to eventually start buying again (instead of selling).

Personally I've been buying some ITs that are highly correlated with the long gilt market again, for example INPP which is yielding over 7% now. The underlying price should recover, even if it doesn't I'm quite happy to hold at an asset that's yielding +7% at purchase price, with dividends being raised annually. 

Bostonerimus1

I got out of the bond markets 10 years ago when I retired and I'm glad that I did. I always kept the average maturity of my bonds around 7 years and did not look to change that along with yields or short term economics and never bought individual bonds. If you have something like a 60/40 asset allocation and are buying regularly then you will be buying your bond funds at reduced prices right now which is good if it's a while before you'll retire. If you are approaching retirement with a lifestyled portfolio you should do ok if you planned to buy an annuity as their payout rates should have increased along with bond yields, but if you are looking at drawdown watch out for "sequence of returns" impacting your overall withdrawal rate.

Altior

US equities seem like a one way bet (of course, they aren't), the whole covid saga was very weird, so brief it wasn't really a correction, and pretty much memory holed. The last downturn that was actually deep and hurt the West is getting on for two decades ago now.

We won't know how good (or bad) it is to be in bonds until the world suffers its next deep recession. My instinct is that it's a good place to be 'risk off' in equities right now, and funnily enough I have sold off most of my global equity holdings at the start of this year, and parked it in MM. I am to tilting bonds and yield, for better or worse, especially in this live opportunity. 

I'm at a tricky age in that I hope to be able to retire in eight years (if the rules don't change). So perhaps I don't have the scope to ride out a long global downturn. 

Hoenir

cloud_dog said:

So without getting into politics, what have I missed that the current Government is planning / implementing / suggesting that has spooked the markets to the point that they are applying a higher risk weighting for our Gilts?

In a nutshell the growing debt pile that developed nations are accumulating. The bigger the pile the greater the amount of interest to service it. Think of it as a credit card. Eventually it will end up being maxed out. 

The US isn't in any better position. Arguably worse. As nobody seems willing to face up to reality. Bideneconomics is going to haunt the Trump administration very rapidly into it's term. 

cloud_dog

Altior said:

When Truss wiggled her magic fingers and caused the chaos a couple of years ago 

So without getting into politics

That is quality to be fair

I'll accept the critique of my chosen language, but in that example there was an action and a corresponding re-action, which us plebs could at least assimilate the what and why.