The BOE's emergency QE program to give pensions a way out of an illiquid bond market is set to end tomorrow. Today, UK 10 year yields are down 13 bps to 4.18% while 30s are down more than 60 bps from yesterday's highs.
That's a sign that there:
1) Will be a new plan to follow it up
or 2) All is well
ITV's Robert Peston reports this:
The Bank’s scheme will end with the hoped-for whimper, not a calamitous markets bang. We should all sigh with relief. Those close to the big pension funds tell me the funds have taken great strides to undo the excessive exposure to volatile government bonds in their so-called LDI vehicles, thanks in part to the Bank’s £65bn purchase facility
Now, he conditions all this on Truss following through on a U-turn on tax policy and I'm not so sure that's coming. I'm also skeptical it was the main reason behind the bond rout to begin with.
Ultimately, higher interest rates are good for pensions because it improves returns. They just need some liquidity to bridge the gap, so it makes sense that we should eventually see some relief. At the same time, you can't be sure there aren't any hidden problems but when Peston reports on "those close to big pension funds" he's not making it up.
In any case, rising rates don't just cause problems for the UK. At some point, we'll have an emerging market crisis that leads to the same kinds of ripple effects.
