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On Wednesday the Bank of England said that it would start a temporary programme of long-dated UK government bond purchases to try and stabilise the market.
“All the attention has been on gilts, but actually the pain on GBP investment grade corporate bonds has been even greater,” said Mike Riddell, fund manager at Allianz (ETR:ALVG) Global Investors, speaking before the BoE’s surprise announcement.
He said that liquidity in the corporate sterling market – not great at the best of times – was looking “almost non-existent” right now.
Prices for sterling-denominated corporate bonds are falling sharply.
The Markit iBoxx Sterling Corporate Bond Index has fallen 10.2% so far in September to a price of 296 — its lowest since early 2016. The monthly fall puts it on course for its biggest monthly slide since at least 1999. The ICE (NYSE:ICE) BofA Sterling non-Gilt Index, which measures the prices of investment grade debt, is headed for its worst monthly performance since records began in 1997. It is down 9.8% in September with a price of around 337 at Tuesday’s close, the lowest since late 2015.
Jim Leaviss, a fund manager at M&G in London, said credit spreads across markets had been widening over recent weeks, but there was “definite underperformance” in the UK.
The British government on Friday unveiled a series of tax cuts to be funded by borrowing. The announcement sparked widespread concerns about the country’s finances triggering fierce selling of UK assets including sending the pound to a record low.