The Ultimate Carry Trade ?

Last week’s BWIC list (bids wanted in competition) from the Bank of England gave further evidence, if it was needed, that the demand for Sterling corporate bonds remains very strong. The table below, kindly provided by HSBC, shows the bonds that were sold and that most traded through where the market was pricing them last Friday.

The BOE took the opportunity to sell a selection of the corporates it purchased in its QE program of last year. Despite receiving bids for every bond on the list The Bank decided to sell a mere £83.7m worth, or one quarter of the £324m bonds that were on offer. Running a ruler over the levels achieved in the auction The Bank achieved new highs for many of the bonds that were sold.

A year ago Richard wished the BOE every success as corporate bond fund managers, so far so good. Analysts over at Evolution Securities have since calculated that the BOE has so far earned around £60 million on the £1.55 bn portfolio of bonds they currently own. Not a bad return considering the Bank’s ability to print money and therefore to finance at no cost. Coupled with evidence from previous banking crises such as the Swedish one back in 1992,  The Old Lady of Threadneedle may well see a tidy profit from its actions.

List of Bonds

Discuss Article

  1. Anonymous says:

    not so good as gilt fund managers though are they? what is the total unrealised loss there thus far?

    Posted on: 13/01/10 | 12:00 am
  2. Stefan Isaacs says:

    FT story this morning: Bank loses £3.6 billion in QE programme.  They might have done well on the corporate bond purchases, but because of rising gilt yields they are sitting on a £8 billion capital loss on the (much bigger) gilt buying spree.  This is offset by the £4.4 billion of interest they have received. 

    Posted on: 15/01/10 | 12:00 am

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