Global stocks and government bond prices turned lower on Thursday, following a broad rally in the previous session after the Bank of England intervened to support the gilts market.
A FTSE index of worldwide shares slipped 0.2 per cent, after gaining 1 per cent on Wednesday. Europe’s regional Stoxx 600 fell 1.4 per cent in morning dealings, while the FTSE 100 lost 1.2 per cent. Futures contracts tracking Wall Street’s S&P 500 slid 1.1 per cent, after the index closed up 2 per cent to snap a six-day losing streak.
The moves came after the BoE on Wednesday unveiled a new bond-buying programme, saying it would purchase long-dated gilts in light of the recent “significant repricing” of UK government debt and warning of a “material risk to UK financial stability” were “dysfunction” in the market to persist.
The action taken by the central bank initially triggered a sharp rally in UK assets, which rippled into other global markets. The 30-year gilt yield posted its steepest daily drop on record, as the price of the debt instrument surged. Earlier in the session, the yield had touched a 20-year high of more than 5 per cent as concerns intensified about the new UK government’s proposed tax cuts and borrowing plan.
That steep rise in bond prices partially unwound on Thursday, with the 10-year gilt yield rising 0.16 percentage points to 4.17 per cent and the 30-year yield rising 0.08 percentage points to 4.01 per cent as their prices fell.
Similarly, the yield on the 10-year US Treasury note — seen as a benchmark for borrowing costs around the world — rose 0.14 percentage points to 3.84 per cent, after falling sharply on Wednesday on a broad wave of positive investor sentiment.
In currencies, the pound lost 0.7 per cent against the dollar to trade just below $1.08 on Thursday, after gaining in the wake of the BoE’s intervention. An index measuring the dollar against six peers rose 0.4 per cent.
The dollar has hit a series of fresh 20-year highs in recent months, buoyed by the relative weakness of other currencies, aggressive monetary policy tightening by the US Federal Reserve and the greenback’s traditional status as a haven in times of economic and market stress.
“Yesterday . . . saw the Bank of England’s Financial Policy Committee take the decision to break the ‘doom loop’ at the long end of the UK gilt market as margin calls on pension funds and the need to raise cash risked a downward spiral for long-dated gilts,” said analysts at ING. “In effect, this is the first big intervention from a G10 central bank in this cycle to avert a financial crisis. It may not be the last.”
“It serves as a reminder to policymakers around the world that any perceptions by the market of a policy mis-step will be heavily punished,” they added, “and with the Fed to keep hiking into a slowdown . . . these conditions may well be with us for the next six to nine months.”
The strong gains on Wall Street on Wednesday helped some Asian stock markets to push higher on Thursday with Japan’s Topix rising 0.7 per cent. Hong Kong’s Hang Seng surrendered early gains to move 0.5 per cent lower, while China’s CSI 300 was broadly flat.
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