Gilts Gone? October 14

[waterbottle]

I figured I'd start a doomer thread for this Friday.

For those unaware, the 30 year UK gilt yield sky-rocketed in late Sept following an inflationary government budget plan.
The BoE "intervened" as several funds were getting margin calls they weren't able to cover. Worryingly, in a letter from the BoE it seems many funds were not able to sell!

Where capital was not incoming quickly enough, pooled LDI funds would have been forced to deleverage by selling gilts at levels far exceeding the normal daily level of gilt trading into an illiquid market. (Some funds had already tried to sell gilts and failed to do so.) With the gilt market unable to absorb further large sales, had large sales been
1 Margin requirements are a vital part of the financial system to manage counterparty credit risk.Bank of England Page 7
attempted yields would have been pushed even higher, forcing further gilt sales in an attempt to maintain solvency. This would have led to a self-reinforcing spiral of price falls and further pressure to sell gilts.

The BoE committed to purchasing £5 billion worth of gilts per day. Although in the same letter they described only purchasing £3.7 billion after 8 days of operations!

Meanwhile, the 30 year yield has resumed its upward trajectory and is now sitting at 4.5% (approx 60bps below its recent high) and the BoE has come out and publicly stated that pension funds have until Friday to sort their balance sheets out.

I thought I'd start this thread to get some ideas about what to expect should the BoE stick to their guns.
If pension funds are forced to dump gilts to settle margin calls, yields are going to soar higher. Besides the implications of higher debt financing costs, I would presume this would lead to additional falls in the GBP as money moves into USD. Or will we be looking at a default event for the UK?

 

[Dona Ferentes]

10 yr or 30 yr?

 

[waterbottle]

10 yr or 30 yr?

Sorry not sure what you're referring to? 30 yr is used in the letter to explain what happened to gilts.

 

[Dona Ferentes]

Gilts are 10 yr or 30 yr. Yes, the long end has moved but it's only an element .

 

[waterbottle]

Bloomberg - Are you a robot?

Looks like a game of chicken between government and central bank. What was that famous Rothschild quote?

 

[waterbottle]

Bloomberg now reporting UK Officials are orking on a u-turn for Truss's cut plan. Yields heading lower, GBP rising.

 

[Knobby22]

Time for a no confidence motion in Parliament?

 

[waterbottle]

Time for a no confidence motion in Parliament?

This was the quote I was after...

"I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man who controls the British money supply controls the British Empire, and I control the British money supply." Rothschild 1815

 

[Dona Ferentes]

Time for a no confidence motion in Parliament?

or Chancellor Kwasi Kwarteng fall on his sword

Bloomberg now reporting UK Officials are working on a u-turn for Truss's cut plan. Yields heading lower, GBP rising.

and also, not inspiring confidence, when Bank of England governor Andrew Bailey ...
... "sent mixed messages over [the Bank's] intervention in the gilt market. Mr Bailey said unequivocally at a meeting in Washington that the bond-buying rescue mission would end this Friday. But only a few hours later, the Financial Times reported the BoE telling bankers privately that the scheme would be extended"

....Amid market see-saws, the Bank was forced to issue a statement reiterating Mr Bailey’s words from Washington..

 

[waterbottle]

Liz Truss expected to hold a press conference soon on the economy....

Politics latest: Chancellor lands in UK for crunch talks as senior Tory urges mini-budget U-turn today

Politics Hub brings you the latest political news, insight and analysis from the Sky News team in Westminster. Liz Truss faces more pressure from her own MPs to reverse further on her mini-budget.

news.sky.com

At Westminster, there were reports of fevered plotting among Tory MPs amid suggestions that Ms Truss's two main rivals for the Tory leadership over the summer - Rishi Sunak and Penny Mordaunt - could be installed at the head of a new administration.

What a joke...

 

[waterbottle]

Bloomberg now stating that the Chancellor is likely to get sacked so that Truss could survive!

 

[wayneL]

Liz Truss...
What a joke...

They are all clowns and not true conservatives at all.

Bring on Kemi... PLEASE!

 

[waterbottle]

Kwasi Kwarteng: PM’s vision was right, says sacked chancellor

Jeremy Hunt will take over as chancellor, as Liz Truss is expected to U-turn on her economic plan.

www.bbc.com

Truss expected to be ousted be next week.... How does this contribute to financial stability wtf

 

[divs4ever]

am guessing outcast Farage , is the only one to unite the people , but has little hope because the Globalists still think they can win and trick England into rejoining that EU cesspit

there will be the Brussels administration overseeing regional councils ( no national parliaments required ) , unless the agenda fails ( completely )

the UK is failing apart first the Scottish vote and soon the Irish one ( to unite the island )

Britain started to fail once they elected Johnson

 

[Smurf1976]

Britain started to fail once they elected Johnson

A lot of their present mess goes back a lot further than that.

Economically they've been pretty much stuffed for half a century or more and just finding ways to kick the can.

 

[waterbottle]

Hmmmm a phyrric victory for gilts?

The 10 and 30yrs and still close to their recent high, despite an increase in corporate tax and the Chancellor being axed....

More importantly, the BoE hasn't continued their operation (then again they haven't declared its cessation either) so the actions in late Sept weren't a true pivot.

Looks like the markets demand a greater sacrifice, and central bankers aren't going to do anything to stop them.

Scary.

 

[Knobby22]

Hmmmm a phyrric victory for gilts?

The 10 and 30yrs and still close to their recent high, despite an increase in corporate tax and the Chancellor being axed....

More importantly, the BoE hasn't continued their operation (then again they haven't declared its cessation either) so the actions in late Sept weren't a true pivot.

Looks like the markets demand a greater sacrifice, and central bankers aren't going to do anything to stop them.

Scary.

When a government shows total incompetence, the market assumes that any backtracking is not enough as additional stupidity is likely in the future.

A vote of no confidence has to occur and a sober conservative with a record and knowledge of how the economy works needs to be elected.

The Conservatives have such a person but he was beaten by sections of the right wing press looking for a tax cut for billionaires and the blindness of the rank and file members.

 

[waterbottle]

Jeremy Hunt to make a statement on soon on the budget.
Commentators think there'll be more austerity.
This reminds of the 2010-2012 debate the ECB had. Austerity v. Money printer. Draghi (then ECB chair) famously came out with the 'whatever it takes' statement, declaring the death of austerity.
Now look at where we are...

Interesting times

 

[waterbottle]

BBC reporting that most tax cuts have been reversed and the energy support package will only last for 6 months instead of 2 years. Bond yields falling.

Meanwhile:

Lawmakers will try to oust UK PM Truss this week, Daily Mail reports

British lawmakers will try to oust Prime Minister Liz Truss this week despite Downing Street's warning that it could trigger a general election, the Daily Mail reported.

www.reuters.com

 

[waterbottle]

PM Truss has resigned!

Central bank wins