The twin crashes in US commercial real estate and the US bond market have collided with $9 trillion uninsured deposits in the American banking system. Such deposits can vanish in an afternoon in the cyber age.
The Bank of England on Tuesday announced an expansion of its emergency bond-buying operation as it looks to restore order to the country’s chaotic bond market. The central bank said it will widen its purchases of U.K. government bonds — known as gilts — to include index-linked gilts from Oct. 11 until Oct. 14. Index-linked gilts are bonds where payouts to bondholders are benchmarked in line with the U.K. retail price index.
One minute after 1pm, the Treasury announced results from today’s sale of $43 billion in 2Y paper, which were nothing short of disastrous. The high yield – already the highest in 15 years – was almost a full percent, or 98bps, above August’s 3.307%, and stopping at a high yield of 4.290%, the auction tailed the When Issued 4.274% by 1.6bps, the biggest tail going back to feb 2020 when the bond market was similarly paralyzed, but back then it was due to covid.
The unraveling of the bond market will continue to batter stocks over the coming months, according to a Friday note from Bank of America. Bonds are experiencing their worst decline since 1949 as interest rates soar amid a global central bank campaign to fight inflation. The US Aggregate Bond ETF is down 15% year-to-date, while global bonds are down even more.