More Of The Same From The BoE

Gilts have underperformed the Global Treasury aggregate over the past few months and are currently near fair value.

Will they continue underperforming?

More Of The Same From The BoE

T he Bank of England (BoE) policy is unchanged with a focus on Funding for Lending (FLS), while deemphasizing quantitative easing (QE). The BoE remains optimistic that the FLS will provide enough stimulus to counteract ongoing austerity, but there is as yet no evidence of a meaningful pickup in credit. Austerity is hurting growth, which means that easy monetary policy will be required for an extended period and a rating downgrade cannot be ruled out. Long-end relative performance is also vulnerable to pension reform which will reduce long-term gilt demand.

Concerning the future course of monetary policy at the BoE, the new BoE governor Mark Carney has said that he will consider nominal GDP targeting and other alternative approaches once his term starts in July. But radical change may be tough to implement at an institution that has struggled to uphold its inflation-fighting commitment in the face of persistent inflation surprises in recent years.

Our Global Fixed Income Strategy service believes it is too early to position for radical change at the BoE and recommends a modest underweight allocation to gilts in a global hedged portfolio. (tweet this!)

Print Friendly
Macroeconomic Research
BCA Research About BCA Research

BCA Research is the world’s leading provider of independent investment research. Since 1949, the firm has supported its clients in making better investment decisions through the delivery of leading-edge economic analysis and comprehensive investment strategy research. With access to over 150,000 raw time-series, BCA strategists are aided by one of the most extensive research databases in existence, cover every region of the globe, and provide analysis on virtually every investable asset class. BCA maintains a head office in Montreal, with local offices in New York, Los Angeles, London, Hong Kong, Sydney, and Buenos Aires. Not yet a client of BCA? Take a short trial to our research.

Speak Your Mind

*