Gilts

The Daily Update - Not all European government bonds were created equal

Yesterday the Bank of England (BoE) found itself unable buy enough long dated gilts as investors continue to cling on to developed government bonds of all varieties. Following the BoE’s decision to cut the UK base rate and expand its quantitative easing programme by £60bn it only managed to receive offers to purchase £1.12bn of gilts with maturities over 15 years versus their target of £1.17bn. At least part of the reason for this shortage of availability is the more illiquid markets over the summ er – indeed the ECB overbought in earlier months in expectation of such illiquidity but the recent post Brexit expansion of QE obviously had no such option. This prevailing shortage, versus demand, of government bonds looks likely to remain a prolonged dilemma for central banks and investors alike.

Wealthy Nations Daily Update - Brexit: Do Gilts Offer Relative Value?

So far this year using “sterling” as a compliment is rather unbefitting; the Great British Pound is among the worst performers year-to-date of any currency. Today it dropped below 1.40 to the US dollar and is currently down over 5.5% year to date - more than the Korean won (5.0%), Russian rouble (4.5%) and the Indian rupee to name but a few others ranking near the bottom. Since London Mayor Boris Johnson’s announcement to back the “Out” campaign on Monday the pound accelerated its decline. Sterling now only has to drop a little further, to below 1.3770, to surpass GFC lows - allowing the headlines to turn from “7 year lows” into “30 year lows”. Moreover the press are peddling analysts’ “forecasts” that a Brexit could push the currency below 1984/5 levels. That would mean a further 24% decline to below 1.0520 to the dollar, at which it would become a “new all-time low”. Incidentally during this Sceptered Isle’s zenith one could apparently get 10 dollars for each pound note (20 shillings). However this was around 1864 - a time when the US introduced Greenback notes as a fractional currency during the American Civil War.

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