3 min read 5 Sep 19
Summary: Index-linked markets were sent into a tailspin yesterday as Chancellor Sajid Javid responded to an earlier letter from the UK Statistics Authority (UKSA), which had set out recommendations for the reform of the RPI. The longest-dated linkers (maturing in 2065 and 2068) fell by more than 9% as breakeven rates plummeted.
Javid’s response contained three big shocks for index-linked markets:
Despite the extent of yesterday’s moves, it’s worth noting that breakeven rates yesterday only fell by between 10-15 bps. The wedge between RPI and CPIH, however, is around 80 bps, which means breakeven rates could potentially fall a lot further if RPI is eventually brought fully in line with CPIH. Following yesterday’s revelations, we now know there is nothing to stop the statistician from doing precisely this from 2030, once the UKTI 4.125% 2030 matures.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.