British bonds: What’s Happening?
British government debt remains the focal point of the shock. Amid unease over government policies, skyrocketing interest rates, and pension fund firesales. As U.S. Treasury markets resume from their long weekend. The Bank of England announced on Tuesday that it would continue to buy inflation-linked debt. They will do so through the end of this week. This is in an effort to stop a dramatic sell-off in the $2.31 trillion market for British government bonds.
The BoE stated in an extraordinary statement that “Dysfunction in this market, and the prospect of self-reinforcing ‘firesale’ dynamics pose a material risk to UK financial stability” in reference to the extent of the blowout in what were perceived as the’safer’ parts of the G7 government bond markets.
Since debt yields have risen as a result of the government’s disastrous mini-budget late last month, the “firesale” component has unnerved the BoE and all markets, which are concerned about systemic risks. This is because extensive margin calls on UK pension fund liability hedging have been triggered.
Later on Tuesday, Governor of the Bank of England Andrew Bailey makes a speech in Washington. Independent analyses of the “go for growth” tax and spending cutbacks proposed by finance minister. Kwasi Kwarteng were pessimistic about their ability to stabilize Britain’s mounting debt burden. As borrowing costs rose. In a research released on Tuesday, the Institute for Fiscal Studies stated that Kwarteng must make 62 billion pounds in spending reductions or tax increases to avoid the public debt from increasing as a percentage of the economy.
Burning British bonds
In order to quell decades-high inflation central banks are stifling economic activity worldwide. This is preventing growth from taking place. When the International Monetary Fund releases its most recent World Economic Outlook and Global Financial Stability Report at the annual IMF/World Bank meeting in Washington on Tuesday, it is anticipated that it will lower global growth predictions once more.
Jamie Dimon, CEO of JPMorgan, stated on Monday that the S&P 500 and the global economy may enter a recession by the middle of the following year. From current levels, might drop by “another easy 20%,” with the subsequent 20% decline likely to “be considerably more unpleasant than the first.”
And on Tuesday, concerns over China’s slow economy picked more steam. Beijing committed to uphold its zero-COVID policy. And when infections increased following a week-long holiday. Testing for COVID-19 was stepped up in Shanghai and other major Chinese cities, including Shenzhen and Xian.
The situation in the parallel property debt market also doesn’t seem to be getting better. On Tuesday, Moody’s said that it has removed the credit ratings of real estate developers Kaisa Group and China Evergrande due to incomplete data.
Before the market opened, the yield on the 10-year U.S. Treasury note (US10YT=RR) was once more flirting with the year’s highs above 4%, while global stocks were in route to new lows in 2022. European stock exchanges and U.S. stock futures both experienced another decline of almost 1%. The dollar’s increased power probed higher and higher.
