HALISTER1: BOE Room to Do More May Create Carney Put for GBP Credit: BofAML

BOE Room to Do More May Create Carney Put for GBP Credit: BofAML

(Bloomberg) -- The tightening trend in GBP IG spreads has further to go, particularly for the bonds eligible to be bought by the BOE under its Corporate Bond Purchase Scheme (CBPS), Deutsche Bank analyst Michal Jezek writes in client note.
  • The relatively low, explicit cap on the total amount of purchases suggests the BOE can increase the program’s size
  • The central bank’s option to scale it up if funding conditions deteriorate is likely to create a Carney put for the U.K. corporate bond market, reducing perceived risks and transforming eligible debt to lower-beta securities
  • There was greater support for purchases of corporate bonds than gilts in the MPC, which may be seen as a sign the central bank may put a greater emphasis on the CBPS than gilt purchases in the future
  • This is likely to create positive spillover effects for the ineligible GBP corporate bonds, including lower down the rating spectrum
  • NOTE: Credit is a good place to be as the presence of central banks offers a great backstop, according to Janus, while BofAML says GBP non-financial spreads may tighten to ~93bps from 138bps over next 100 days
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Michal Jezek (Deutsche Bank AG)

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