Missing You Already: Investors Rue End of BOE Bond-Buying Program

By Tasos VossosFeaturesDow Jones Newswires

While investors around the world anticipate the tapering of the European Central Bank's massive bond buying, across the English Channel, the Bank of England has already completed its program.

Now fund managers are bracing themselves for life without the BOE's corporate bond purchase program which reached its GBP10 billion limit last week, several months ahead of schedule.

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And while investors debate whether the BOE has met its targets--lowering corporate yields, boosting bond issuance and spurring portfolio rebalancing--they are pretty sure the program was good for them.

"The Bank of England [program] was successful from a confidence standpoint," said Andreas Michalitsianos, portfolio manager at J.P. Morgan Asset Management.

The BOE announced the program--to buy GBP10 billion of corporate bonds over 18 months--last August in the wake of Britain's vote to leave the European Union.

Yields on sterling corporate bonds and their spreads over U.K. government debt started tumbling not long after June's Brexit vote, in anticipation that the BOE would announced such a program. The ECB, meanwhile, had already started to buy corporate bonds as it also looked to stimulate its economy.

Yields have shown a more muted response since the program started in September, but the BOE could already claim victory.

But some investors worry that as the BOE withdraws its money, the effects of previous spending may reverse and spreads come back out.

"The sterling corporate bond market is losing a large marginal buyer, which should make spreads widen over the medium term," said Nicolas Trindade, sterling credit fund manager at AXA Investment Managers.

And while the Bank of England mainly failed to boost the supply of sterling corporate debt, market participants still appreciated the buying.

The BOE "helped the market by being in it for a while, especially in the initial period of greater uncertainty," says Michal Jezek, a credit strategist at Deutsche Bank. "They did no harm and helped on the margin, so it's still positive."

Write to Tasos Vossos at Tasos.Vossos@wsj.com

(END) Dow Jones Newswires

May 09, 2017 05:41 ET (09:41 GMT)