Investors are losing confidence in the Bank of England’s ability to support debt markets during the Brexit – that is, if one looks at the performance of long-term sterling bonds.
According to Bloomberg, holders of such bonds have lost about 10% in less than two months following the BOE’s decision to buy corporate debt as part of its new stimulus program.[1] The new stimulus, which was announced in August, includes a £70 billion bond buying program targeting both government and corporate debt. The central bank said it will buy £60 billion worth of government bonds and £10 of sterling-denominated investment-grade corporate bonds.[2]
The BOE also slashed interest rates to a new record low of 0.25% in order to mitigate expected damage from the June 23 Brexit vote.
While the moves initially boosted investor optimism, concerns about a so-called “hard Brexit†have pushed sterling deeper into the abyss. The British currency has lost around 18% since the Brexit vote, with losses accelerating in October after British Prime Minister Theresa May said her government would pursue a hard exit from the European Union.
In a speech to delegates in early October, May said she would not consider a “trade-off†between controlling immigration and maintaining trade with the rest of Europe.
On Britain’s future relationship with the EU, the prime minister said: “I want it to include cooperation on law enforcement and counter-terrorism work.  I want it to involve free trade, in goods and services.  I want it to give British companies the maximum freedom to trade with and operate in the Single Market – and let European businesses do the same here.
“But let me be clear.  We are not leaving the European Union only to give up control of immigration again. And we are not leaving only to return to the jurisdiction of the European Court of Justice.â€[3]
The pound experienced a large selloff following the remarks, including a brief 6% flash crash in a matter of minutes on the morning of October 7.[4]
