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BOE Bailey Busts Rally

US TSYS

Tsys pared gains along with equities in late Tuesday trade after BoE Gov Bailey, speaking in DC, warned of "serious risk to financial stability in the UK".

  • Bailey also doubled down on message to pension funds is that "you've got three days left" reinforcing that the current intervention in markets is temporary and that "we will be out" by the end of the week.
  • Other market watchers suggested the late reversal is do to factors outside the gilt market than actually from the market participants this is directly impacting based on the day's low take-up in purchase operations.
  • Tsys had rallied overnight after the BoE Linkers will now be eligible in the daily gilt purchase operations for the remainder of this week: up to GBP5bln linkers will be eligible for purchase (14:15-14:45BST) and GBP5bln of long conventional (15:15-15:45BST - an hour later than previous operations). Corporate bonds sales scheduled for today and tomorrow "will not take place".
  • Focus turns to Wednesday's Sep FOMC minutes release at 1400ET, CPI Thursday at 0830ET.
  • Currently, the 2-Yr yield is down 0.4bps at 4.3037%, 5-Yr is up 1.1bps at 4.1528%, 10-Yr is up 4.3bps at 3.9245%, and 30-Yr is up 5.3bps at 3.8943%.
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