Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
UK Buying bonds, Resumes QE, and US Market is up 550-600 points .. what's next?
Old 09-28-2022, 04:43 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2013
Posts: 1,646
UK Buying bonds, Resumes QE, and US Market is up 550-600 points .. what's next?

So, the US Market today got blessed by the UK action of buying bonds, resuming QE, causing the 10-Year US Treasury yield to dive by -6.53% back to 3.70% and pushing stocks up.

What do you guys see next? Some commenters are seeing capitulation
__________________
No to consumerism, Living a simple life, enjoying the experience - not the material stuff
cyber888 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-28-2022, 04:49 PM   #2
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 16,409
Quote:
Originally Posted by cyber888 View Post
So, the US Market today got blessed by the UK action of buying bonds, resuming QE, causing the 10-Year Treasury yield to dive by -6.53% back to 3.70%

What do you guys see next? Some commenters are seeing capitulation

U.K. said they will end this as soon as the bond market quiets down. Here's Wolf's article posted today (even before they started QT):

https://wolfstreet.com/2022/09/28/uk...g-dated-bonds/

Quote:
Over the past few days, the pound plunged, including with a flash-crash on Monday that briefly took it to record lows against the US dollar. Prices of long-dated bonds went into a death spiral, with the 10-year yield spiking by 130 basis points in four trading days to 4.63% early today, and by 275 basis points in seven weeks ago (up from 1.88% in early August).

The bond market reaction represents a colossal and sudden degree of “tightening” of the financial conditions, before the Bank of England’s QT had even started. QT is designed to bring up long-term yields, but they already exploded due to chaos.
__________________
Everyone has a plan until they get punched in the mouth...philosopher Mike Tyson
aja8888 is offline   Reply With Quote
Old 09-28-2022, 04:56 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Aug 2013
Posts: 1,646
Quote:
Originally Posted by aja8888 View Post
U.K. said they will end this as soon as the bond market quiets down. Here's Wolf's article posted today (even before they started QT):

https://wolfstreet.com/2022/09/28/uk...g-dated-bonds/
I guess there's a lot of uncertainty with the new UK governments tax cuts, that will affect the bond markets, QE or QT. How soon is a question mark too.
__________________
No to consumerism, Living a simple life, enjoying the experience - not the material stuff
cyber888 is offline   Reply With Quote
Old 09-28-2022, 05:06 PM   #4
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 16,409
Quote:
Originally Posted by cyber888 View Post
I guess there's a lot of uncertainty with the new UK governments tax cuts, that will affect the bond markets, QE or QT. How soon is a question mark too.
Yes, tax cuts for the wealthy were not received very well. And increasing taxes on energy companies when you really need them was not that well received either. The bonds (Gilts) crashed and U.K. pension funds were called upon to supply collateral (cash) to cover their leveraged positions. It's a house of cards in the UK and QT has not even started yet. This is a disaster in the making.
__________________
Everyone has a plan until they get punched in the mouth...philosopher Mike Tyson
aja8888 is offline   Reply With Quote
Old 09-28-2022, 05:12 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Aug 2013
Posts: 1,646
Quote:
Originally Posted by aja8888 View Post
Yes, tax cuts for the wealthy were not received very well. And increasing taxes on energy companies when you really need them was not that well received either. The bonds (Gilts) crashed and U.K. pension funds were called upon to supply collateral (cash) to cover their leveraged positions. It's a house of cards in the UK and QT has not even started yet. This is a disaster in the making.
Right. I'm not sure if this is the right policy direction, and how long this new Prime Minister will last.
__________________
No to consumerism, Living a simple life, enjoying the experience - not the material stuff
cyber888 is offline   Reply With Quote
Old 09-28-2022, 05:18 PM   #6
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 16,409
Quote:
Originally Posted by cyber888 View Post
Right. I'm not sure if this is the right policy direction, and how long this new Prime Minister will last.
She certainly got a wake up call this week, but she can always blame the Bank of England if things really go South! (all the baseload problems didn't happen on her watch)
__________________
Everyone has a plan until they get punched in the mouth...philosopher Mike Tyson
aja8888 is offline   Reply With Quote
Old 09-28-2022, 09:46 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 33,033
What?!?
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 09-28-2022, 10:28 PM   #8
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 485
Quote:
Originally Posted by cyber888 View Post
So, the US Market today got blessed by the UK action of buying bonds, resuming QE, causing the 10-Year US Treasury yield to dive by -6.53% back to 3.70% and pushing stocks up.

What do you guys see next? Some commenters are seeing capitulation
Maybe Liz Truss attended the Jerome Powell School of Economics and thinks the inflation hitting UK is transitory.
luckydude is offline   Reply With Quote
Old 09-29-2022, 01:24 AM   #9
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,919
In the UK all budgets are reviewed and reported on by the independent Office of Budget Responsibility, OBR, and by not declaring this recent budget a “budget” the OBR did not scrutinize it and issue a report. Huge cuts in revenue from the largest tax cuts in a generation and no balancing income or cuts in spending. The UK government is supposed to produce at least one budget a year which doesn’t have to balance but has to be analyzed by the OBR.

The UK economy is in free fall and it is all self inflicted.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 09-29-2022, 05:30 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 2,572
I'm puzzling on why a change in bond prices would endanger anything. Are they using high leverage or something?
jim584672 is offline   Reply With Quote
Old 09-29-2022, 07:19 AM   #11
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,919
Quote:
Originally Posted by jim584672 View Post
I'm puzzling on why a change in bond prices would endanger anything. Are they using high leverage or something?
The UK government is highly leveraged. (Debt load is now 2.1 trillion GBP which is about the same as its GDP)

It's all gobbledy-gook to me but as treasury bond (gilts) prices plunge and their interest rates soar in response the cost of UK borrowing also soars.

https://www.gov.uk/government/news/h...y-intervention

Quote:
The Bank of England, in line with its financial stability objective, carefully monitors financial markets and any potential risk to the flow of credit to the real economy, and subsequent effects on UK households and businesses.

Global financial markets have seen significant volatility in recent days.

The Bank has identified a risk from recent dysfunction in gilt markets, so the Bank will temporarily carry out purchases of long-dated UK government bonds from today (28 September) in order to restore orderly market conditions. These purchases will be strictly time limited, and completed in the next two weeks. To enable the Bank to conduct this financial stability intervention, this operation has been fully indemnified by HM Treasury.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Old 09-29-2022, 07:32 AM   #12
Moderator Emeritus
aja8888's Avatar
 
Join Date: Apr 2011
Location: The Woodlands, TX
Posts: 16,409
Quote:
Originally Posted by jim584672 View Post
I'm puzzling on why a change in bond prices would endanger anything. Are they using high leverage or something?
Read the Wolf Street article I linked above in a post. It discusses the leverage situation in detail.
__________________
Everyone has a plan until they get punched in the mouth...philosopher Mike Tyson
aja8888 is offline   Reply With Quote
Old 09-29-2022, 08:02 AM   #13
Thinks s/he gets paid by the post
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 3,299
Hard to ascribe yesterday's bump in US markets to this news.1592665375-20200620.jpg
__________________
ďNo, not rich. I am a poor man with money, which is not the same thing"
GravitySucks is online now   Reply With Quote
Old 09-29-2022, 08:02 AM   #14
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Land of Florida Man
Posts: 37,698
Quote:
Originally Posted by jim584672 View Post
I'm puzzling on why a change in bond prices would endanger anything. Are they using high leverage or something?
According to the FT, the problem was UK pension funds using fixed income derivatives to fund their long term liabilities. An increase in long term interest rates had the effect of a margin call on them, and to meet it they needed to sell long dated govít bonds. This made interest rates rise even more, which created a vicious cycle. The only way to stop it was for the BoE to announce it was buying those long term bonds, stopping the price decline - for now.
MichaelB is offline   Reply With Quote
Old 09-29-2022, 08:50 AM   #15
Recycles dryer sheets
 
Join Date: May 2011
Posts: 479
I guess reality set in today. Nice short squeeze yesterday.

Crazy.
11522914 is offline   Reply With Quote
Old 09-29-2022, 08:54 AM   #16
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 405
Quote:
Originally Posted by MichaelB View Post
According to the FT, the problem was UK pension funds using fixed income derivatives to fund their long term liabilities.
In other words they were short interest rates and when rates soared they got their asses handed to them. Being on the wrong side of a market when you are short a derivative on that market is a bitch. I know. I've been there (unfortunately).
jldavid47 is offline   Reply With Quote
Old 09-29-2022, 08:56 AM   #17
Recycles dryer sheets
 
Join Date: Mar 2019
Posts: 405
Quote:
Originally Posted by 11522914 View Post
I guess reality set in today. Nice short squeeze yesterday.

Crazy.
Two words: Bear Market.
Three more words: Imploding Everything Bubble.
jldavid47 is offline   Reply With Quote
Old 09-29-2022, 09:03 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 33,033
Quote:
Originally Posted by Alan View Post
The UK economy is in free fall and it is all self inflicted.
Bummer!!

I assume the bulk of your investments are still in the US?
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 09-29-2022, 09:06 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 33,033
Quote:
Originally Posted by 11522914 View Post
I guess reality set in today. Nice short squeeze yesterday.

Crazy.
Yeah, occasionally there are these one day wonder surprises even in a bear market.
__________________
Retired since summer 1999.
audreyh1 is online now   Reply With Quote
Old 09-29-2022, 01:41 PM   #20
Administrator
Alan's Avatar
 
Join Date: Jul 2005
Location: N. Yorkshire
Posts: 31,919
Quote:
Originally Posted by audreyh1 View Post
Yeah, occasionally there are these one day wonder surprises even in a bear market.
They have to be in the USA because as a USC any pooled investments such as mutual funds are treated as PFICs and taxed punitively. Vanguard.co.uk does not even accept USCs as customers.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Enough private pension and SS income to cover all needs
Alan is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
How's the 600 billion going to affect the market and inflation? novaman FIRE and Money 101 11-17-2010 08:09 AM
market to crash again, down by 35% (S&P 600) by year end, Gary Schilling shotgunner FIRE and Money 94 03-31-2010 08:52 AM
Schilling still predicting S&P 500 at 600 points yet to come shotgunner FIRE and Money 4 05-13-2009 02:19 PM
$550,000,000 City of Los Angeles DWP Revenue Bonds. Disappointed FIRE and Money 0 11-05-2008 10:54 AM

» Quick Links

 
All times are GMT -6. The time now is 01:25 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.