Wednesday’s price action in the UK 10-year gilt.
A stunning reversal, eh?
Although an entirely predictable one, according to Mark Ostwald of Monument Securities.
What a momentous day, and a roller coaster ride for Gilts. The market’s positive reaction to the low level of offers is understandable, given the perceived risk that there would be a deluge of offers following the failed 4.25% 2049 auction.
Conclusion: As has been oft observed, the success of QE is to a significant extent contingent on communication, which over the past 36 hours has been woefully poor. Indeed the overall sharp steepening of the Gilt curve in that period has to be considered to be a slap in the face for the BoE, who would surely have wanted to see the curve flattening as a result of the QE process. While one might attribute some of that steepening to the shock of the inflation data, that would be to let policymakers off the hook much too lightly for their very poor communication.
Related link:
Gilt auction failure begins - FT Alphaville
Fed to start QEasing today, should we be VaRy worried? - FT Alphaville
