A well-timed update from the Bank of England’s Financial Policy Committee has stated today that the Iran war is making the UK gilt market particularly vulnerable. In addition to the dim view bond traders take of the Reeves rollercoaster…
The committee says the war in general represents a “substantial negative supply shock” to the global economy: “The conflict has made the global environment materially more unpredictable and followed a period in which global risks were already elevated. This increases the possibility of large, frequent and potentially overlapping shocks and periods of intense volatility.” In case you supposed otherwise…
It went further to note that the most leveraged hedge funds in UK gilts also hold large positions in US Treasuries and European government bonds in high-risk concentrations: “Cross-market positions, in addition to firms pursuing similar strategies, increased the risk of disorderly unwinds causing jumps to illiquidity in core UK markets, including through cross-border spillovers.” The BoE also warns of large gilt selloffs as share prices drop…
Buried at the end the committee says it wants to reduce its legally required minimum meetings from four to three per year. Feeling gilty…
