LONDON (Reuters) – British corporate bonds are headed for their biggest monthly decline since data in the 1990s, as the fallout from the British government’s “mini-budget” continues to drive up borrowing costs, it showed on Wednesday.
The Bank of England said on Wednesday that it will start a temporary program to buy long-term British government bonds to try to stabilize the market.
“All the attention was on gold bonds, but in reality the pain on sterling investment-grade corporate bonds was even greater,” said Mike Riddell, fund manager at Allianz (ETR:): Global Investors, speaking ahead of the BoE’s surprise announcement.
He said liquidity in the corporate sterling market – not great at the best of times – appeared to be “almost non-existent” at the moment.
The prices of corporate bonds denominated in sterling are falling sharply.
The Markit iBoxx Sterling Corporate Bond is down 10.2% so far in September to 296 – its lowest level since early 2016. The monthly decline puts it on track for its biggest monthly drop since at least 1999. ) The BofA Sterling non-Gilt Index, which measures investment-grade debt prices, is headed for its worst monthly performance since records began in 1997. It fell 9.8% in September at around 337 at Tuesday’s close, its lowest level since now. late 2015.
Jim Levis, fund manager at M&G in London, said credit spreads across markets had widened in recent weeks, but there was a “clear underperformance” in the UK.
The British government on Friday unveiled a series of tax cuts that will be financed by borrowing. The announcement sparked widespread concerns about the country’s financial conditions which led to a massive sell-off of UK assets, including sending the pound to a record low.