Central banks under stress as bond yields rise

The Bank of England (BoE) revealed measures taken to further ease the strain on pension funds. These decisions followed after increased pension fund stress amid margin calls on liability driven investment (LDI) strategies. The Bank will double its auctions to purchase long-dated UK guilts to £10bn a day until October 14th, 2022.

The BoE also stated they will launch a Temporary Expanded Collateral Repo Facility, that will continue until November 10th, 2022. This expansion will also accept an increase in collateral to corporate bonds under the existing Sterling Monetary Framework.

The US 10-year yield gained on Friday following nonfarm payrolls report. This reversed the decline initiated at the start of last week after there was a fall in job openings. These movements transferred into the FX markets, where the USD/GBP gained amid strong US data.

The September payrolls data and latest ISM report (down to 50.9) were consistent with the Fed’s hawkish approach to rate hikes over the next two meetings.

Core eurozone bond yields gained on the week as the European Central Bank (ECB) September minutes reiterated the issue of persistently high inflation. The producer price inflation rose to 43.3% (YoY) in August, hitting a new record high. The most highlighting statistic is lead by rising energy prices, which jumped 116.8% (YoY).