Carney Enters Corporate Bond Market in Post-Brexit Stimulus Pushby
BOE will hold reverse auctions to purchase bonds from 11 a.m.
GE and Rio Tinto notes sought on Tuesday with Apple to follow
The Bank of England will start purchasing corporate bonds on Tuesday, opening another front in efforts to cushion the U.K. economy from potential shocks following the nation’s vote to leave the European Union.
The central bank will seek to buy notes issued by companies including General Electric Co., United Utilities Group Plc and Rio Tinto Plc, according to a list distributed last week. Purchases will be made through reverse auctions starting at 11 a.m. in London.
The BOE’s 18-month plan to buy 10 billion pounds ($13 billion) of highly rated, non-financial company notes has pushed yields to record lows as investors have snapped up bonds in anticipation of central bank demand. The difficulty for Governor Mark Carney is that similar purchasing by the European Central Bank has done little to boost the euro-area economy, and the U.K. faces its own challenges in navigating the impact of the June 23 Brexit vote.
“This will almost certainly become another example of a failed attempt by a central bank to generate growth and inflation,” said Richard Hodges, London-based head of unconstrained fixed income at Nomura Asset Management, which oversees $350 billion. “It just means we will all be buying more expensive assets and taking more risk by extending further along the yield curve and down the credit-quality curve.”
The Bank of England has drawn up a list of about 270 bonds eligible for purchase under the program, which was announced alongside an interest-rate cut last month. The bonds have a face value of about 110 billion pounds.
The institution will hold reverse auctions every Tuesday, Wednesday and Friday under the program, focusing on different industry group. Tuesday’s process centers on four sectors comprising energy, water, property, and industrials and transport. This Wednesday’s auction will cover communications and consumer companies, while Friday’s will target electricity and gas.
Apple Inc., BMW AG and McDonald’s Corp. notes will also be in the auctions because the Bank of England intends to buy investment-grade sterling bonds issued by non-U.K. companies that make a “material contribution” to the nation’s economy.
The average yield on investment-grade sterling debt is hovering near a record low at about 2.2 percent, according to Bloomberg Barclays index data. Meanwhile, the notes have returned almost 16 percent this year, putting them on track for an annual record, the data show.