with conventional interest rates. BetaShares senior portfolio manager Chamath De Silva said the central bank’s hands were tied, compelled to avert a collapse in the pension sector.“UK pension funds were on the verge of a crisis due to margin calls on interest rate derivatives creating a forced liquidation spiral in UK government bonds,” he explained.
Meanwhile, yields on 30-year gilts sank, ending the day 100 basis points lower in one of the largest one-day rallies for a developed sovereign bond market in modern history. Mr De Silva said the prevailing view is that developed market central banks, except Japan, will continue to increase interest rates “until something breaks”.“That something broke in the UK, and I think the feeling is that the Fed or the ECB will themselves continue to follow through with their plans until some systemic risk surfaces,” he said.
“At face value, the BoE intervention is an easing of monetary policy that follows on a substantial easing of fiscal policy which will simply fuel inflation at a time when it has already reached a 40-year high,” he said.“Sustaining the intervention will visit on the UK a policy mix that resembles the worst excesses of monetary financed fiscal deficits redolent of banana republic economics of the 1970s.
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