Halister News

(Bloomberg) -- Gilt yields are unlikely to rise even if the U.K. is set to lift issuance to fund an increase in infrastructure spending as the BOE will provide a strong backstop, according to Nicolas Trindade, fund manager at AXA Investment Managers.

• Long-duration gilts position in company’s Global Credit fund and AXA Sterling Credit Short Duration funds is at the highest it has been for a couple of months, Trindade says in interview; he has been active in the rates market because of the volatility in stocks this year
• Still, yields may be close to their lows, barring a black swan scenario such as if negotiations with the EU on Brexit go very badly and trade deals with other countries take much longer than expected
• There’s been a shift in U.K. fiscal policy with deficit reduction no longer the primary target, says Trindade, who manages EU1.67b
• The new govt looks happy to see the deficit widen to prop up the economy and help it to offset the potential negative impact from Brexit
• Now would be a good time to increase gilt issuance, with the yield on 10Y gilts below 0.80% and close to record lows
• U.K. could borrow to fund projects given the country needs investment in infrastructure such as roads, airports, hospitals; would also prop up activity in the short term, which would be positive amid current uncertainty
• That said, doesn’t expect a massive pick-up in gilt issuance; expects the BOE is likely to resume QE in November with an announcement of GBP50b to GBP100b initially
• Gilt yields could start to rise again were the EU willing to compromise and negotiations proceed much faster than investors are expecting, meaning the BOE doesn’t have to cut rates to zero or do the extent of QE the market is pricing; not Axa’s core scenario