UK bond liquidity barely improves after BoE intervention – ING

Sep 29 (Reuters) – The spread between bid and ask prices for UK bonds, reflecting the ease of trading that debt, was only marginally tighter on Thursday than at its peak before the Bank of England intervene to calm the markets, according to data from ING Bank citing Tradeweb showed.

This suggests that conditions in the UK government bond market remain challenging following the rout triggered by last Friday’s mini budget and its unfunded tax cuts.

The Bank of England announced on Wednesday that it would buy some 65 billion pounds of long-term bonds to calm the markets. The announcement stoked volatility, sparking a huge rally on Wednesday that saw 30-year bond yields drop around 100 basis points. Read more

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Average bid-ask spreads on 2-, 5-, 10- and 30-year gilts were 6.225 basis points on Thursday, according to ING, down slightly from the peak of 6.4 basis points seen on Tuesday, before the intervention by the BoE. Tuesday’s spike was the highest on record in ING’s data set dating back to 2017.

The spread was just 2.15 basis points last Thursday, the day before the government’s mini-budget, the data showed.

It averaged around 1.4 basis points from the start of the year until the announcement.

Widening bid-ask spreads mean that the difference between the price sellers ask and the price buyers are willing to pay increases, making it harder and more expensive for investors to trade positions.

Such wide spreads on government bonds are particularly troubling for investors, given that they are supposed to be among the safest and most liquid assets in the financial system.

In past episodes of high market volatility, investors have also said that sellers end up accepting prices lower than those quoted on trading platforms, which means that liquidity could be lower than these figures show. .

“The 30-year (bonds) stabilized today after a 100 basis point rally yesterday, so I think we can say that aspect of the intervention worked, but restoring market functioning is a any other matter,” said Antoine Bouvet, senior rate strategist at ING.

“We will have to wait longer for confidence to return and extend their support beyond October 14, even if they are not buying much,” he said, referring to the date the BoE said. said its bond-buying auctions end.

Gilt yields rose moderately on Thursday. Yields on 30-year gilts, which hit a 20-year high above 5% on Wednesday, before falling after the BoE intervention, rose about 3 basis points to 3.96% .

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Reporting by Yoruk Bahceli; edited by Dhara Ranasinghe and Hugh Lawson

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