Markets

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Bank of England, hold fire.  

After purchasing about 6 billion pounds ($7.6 billion) of the 10 billion pounds of sterling-denominated corporate bonds it can under last year's big monetary-easing package, the central bank should announce Thursday that it will put its buying spree on hold.

The economy has shrugged off its Brexit wobbles, so companies don't seem to need the emergency capital markets support. And the BOE now runs the risk of following in the footsteps of the European Central Bank, which I have argued is distorting the corporate bond market to a worrying degree.

Don't Panic, Mr. Carney
Calm has returned to the U.K. corporate bond market, but where's the return for credit risk?
Source: Bloomberg

U.K. assets with the top junk ratings are now pretty much honorary investment grade -- for instance, the recent BB+-rated Jaguar Land Rover deal pays a 2.75 percent coupon for 4 years. It's hard to see how that counts as a high-yield bond, and investors aren't getting enough return for the risk they're taking. The credit curve you'd expect in a healthy economy is conspicuously absent and instead we're at risk of a bubble in risky assets that will cause trouble in the future. 

So the smarter move now would be for Governor Mark Carney to retain some powers of assistance if Brexit goes pear-shaped -- the purchase program has an 18 month horizon, so that's perfectly doable. The main quantitative easing program for gilts should conclude within the next few weeks and the market's expecting no extension at today's Monetary Policy Committee meeting. It looks like a perfect time for officials to announce that, after a short tapering period, they'll hold on to the remaining firepower of the Corporate Bond Purchase Scheme.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Marcus Ashworth in London at mashworth4@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net