UK

Speculation on the timing of the Bank of England’s first post-pandemic rate hike has been rife. But whether the BoE hikes rates later this week, next month or even waits until after year-end, it is worth thinking about what it will mean for the general public, a step away from the financial markets.

Let’s not forget that the BoE dropped rates from 0.75% right down to 0.1% at the start of the COVID-19 pandemic back in March 2020, having only managed to put through two hikes in 2017 and 2018. It has changed course sharply before.

Fixed income markets have experienced a reasonable correction over recent weeks and, for higher-yielding indices at least, their first negative period so far this year.

This looks to us like a buy-into-the-dip opportunity, but investors should be wary of taking on too much rate sensitivity as the move in risk-free curves is likely to persist until the rate hike cycle is actually on the way.

In the last month, global government bond curves have had a torrid time, with significant steepening seen across US Treasury, UK Gilt and German Bund yields.

It will take time for this sector to recover and we are likely to see more suppliers collapse in the coming weeks and months.

The Bank of England have just added to the debate about how much of the recent surge in savings will be deployed in the form of consumption as we return to ‘normality’.

As more government bond curves around the world join the select group trading at negative yields, we are seeing a spike in ‘Japanification’ headlines in the press.

Regular readers of our blog will know that in the world of additional tier 1 (AT1), the Nationwide Building Society has been one of our favoured issuers in the market. We held the old sterling Nationwide 6.875% perpetual bonds from launch in 2014, and were not in the least surprised when the issuer called the bond at the earliest opportunity in June, though it did leave us a gap to fill in the subordinated bank sector.

“This time next year, Rodney…”

There were sharp declines across global risk assets on Tuesday, led by tech stocks but with barely an asset class left unscathed.

Changes in regulations are typically long and drawn out, but their impact can often be felt quite quickly. There is every chance that this could soon be the case in ABS markets.