Sterling Bonds Fall as Sales to BOE Suggest Rush for Pound Exitby
Sterling corporate bonds declined after a flood of sales to the Bank of England stoked concerns about investor appetite for pound-denominated assets.
BT Group Plc’s 500 million pounds ($622 million) of June 2037 bonds dropped two pence on the pound to 159 pence, capping the biggest weekly decline since 2008, according to data compiled by Bloomberg. Apple Inc.’s 750 million pounds of July 2029 notes fell to a three-month low. Other corporate bonds eligible for a BOE purchasing program also dropped, including debt issued by Scottish Power UK Plc, Vodafone Group Plc and GlaxoSmithKline Plc.
The central bank said on Thursday that it had bought 507 million pounds of corporate debt since starting purchases last week as part of efforts to support the economy following the Brexit vote. The size of the acquisitions surpassed analyst expectations, and it may suggest that investors are rushing to ditch sterling assets amid currency weakness and rising inflation expectations.
“A consensus is now building that 507 million pounds wasn’t good news,” said Gordon Shannon, a London-based money manager at TwentyFour Asset Management, which oversees about 7 billion pounds. “The fact that so much was bought seems like a signal that plenty of accounts and dealers were happy to exit positions. It’s all looking a bit ugly out there.”
Yields on 10-year gilts widened eight basis points to 0.95 percent, the highest since July 21. The pound has fallen to a 31-year low amid uncertainty about the economic impact of the U.K.’s vote to leave the European Union.
The pound’s collapse has damped demand for sterling assets, partly because higher import costs may fan inflation. That could deter the Bank of England from expanding stimulus measures that have supported bond prices since the June 23 Brexit referendum.