BY BILL HARER, HEAD OF FIXED INCOME - CREDIT RESEARCH & UK LINKED FUNDS AND MIKE COUNT, SENIOR FUND MANAGER
October was more of a sideways market in corporate credit, as gilt yields trended up and down but with no real significant moves. This was because the market had already largely priced in a November rate rise from the Bank of England (BoE) back in September. As a result, corporate spreads were also fairly static.
The big news for the fixed income market in October actually came from the European Central Bank (ECB), as it announced that it would begin tapering its asset purchase programme from January 2018. This would see its monthly purchase of €60 billion worth of government and corporate bonds be reduced to €30 billion between January and September next year.
However, similarly to the BoE, ECB President Mario Draghi made this announcement in a relatively dovish manner, for example, there was no guidance as to what would happen from September onwards and the tapering has been kept deliberately flexible. Therefore, government bond yields on the continent did not really move either.
This fits in with our belief that both the BoE and the ECB want to embark on this monetary tightening cycle with room to manoeuvre. They are beginning to take away the extraordinary monetary support that the market has become accustomed to, but will do so in a considered and gradual manner.
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CLI001012 Expiry on 15 February 2018