The dynamics in long-term bonds in GBP suggests that investors are losing confidence in the ability of the Bank of England to support debt markets in the process of leaving European Union (EU). Within less than seven weeks, the bondholders lost about 10% of long-term debt securities issued by Vodafone Group, British American Tobacco and advertising company WPP.
The bond issue was carried out after the Bank of England (BoE) announced in August plans to buy corporate bonds, which in turn led to optimism among investors. But since then, attitudes have deteriorated, because of the prospects for the so-called Hard Brexit, which implies limited access to the single European market, due to the depreciation of the currency and forecasts for higher inflation.
During the two months following the meeting of the regulator on August 4, the companies sold bonds worth about 4 billion GBP with a maturity of 20 years or more. This is almost two times more than in the first seven months of the year.
The manufacturer of tobacco British American Tobacco (BAT) sold on September 5, 36-year bonds worth 650 million GBP at yield of 2.28%. The yield rose to 2.85% amid sell-offs. The company, based in London, announced plans to issue more bonds to pay the remaining shares worth 47 billion USD in the acquisition of Reynolds American.
The yields on 10-year government bond rose to around 1.09%. In late September it was about 0.75% before the speech of Prime Minister Theresa May, which was interpreted more as a support for so-called Hard Brexit. The average cost of funding obligations for companies rose to around 2.52%, thus offset the decline after the announcement of the program of incentives BoE. Since the plan on September 27, the bank has bought corporate bonds worth 1.56 billion GBP. Bond yields rose due to the depreciation of the GBP by about 6% this month. The weaker currency makes imports already started to raise prices to retailers.
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