BOE Optimism Wilts in Long-Term Debt as Brexit Sparks Rout
Long-term sterling bonds suggest investors are quickly losing confidence in the Bank of England’s ability to support debt markets through the U.K.’s departure from the European Union.Holders have lost about 10 percent in as little as seven weeks on long-dated notes issued by Vodafone Group Plc, British American Tobacco Plc and WPP Plc. The bond sales took place after the central bank announced plans in August to buy corporate debt, sparking investor optimism. The mood has since soured because of concerns about a so-called hard Brexit, sterling’s tumble and the outlook for inflation.
“With the benefit of hindsight, August was the best time to issue,” said Srikanth Sankaran, head of European Credit and ABS strategy at Morgan Stanley. “The market was more focused on the Bank of England’s support rather than the longer-term Brexit risk.”Companies sold about 4 billion pounds ($4.9 billion) of bonds maturing in 20 years or more in the two months after the BOE’s Aug. 4 stimulus announcement, according to data compiled Bloomberg. That’s almost double the tally for the first seven months of the year. Issuers rushed to market as the BOE’s bond-purchase plan and an interest-rate cut helped push corporate borrowing costs to a record-low 2.06 percent, based on a Bloomberg Barclays index. Cigarette-maker BAT sold 650 million pounds of 36-year notes priced to yield 2.28 percent on Sept. 5. The yield has now surged to 2.88 percent amid the selloff. The London-based company has also announced plans to issue more debt to help pay for the $47 billion acquisition of outstanding shares in Reynolds American Inc. “We thought the timing was good” for last month’s bond sale, said Oliver Wolfensberger, BAT’s head of corporate finance and financial risk. “The decline is mainly driven by the movement in gilts.”