On 3 August the Monetary Policy Committee of the Bank of England voted unanimously to reduce base rate to 0.25% per annum and, by a majority, to extend the Bank’s asset purchases (“Quantitative Easing”) by £70 billion to £445 billion.
The markets’ response was a further weakening of Sterling and falls in Gilt yields – even though the move had been widely anticipated. Indeed, once the asset purchases began, the yield on Gilts maturing in 2019 and 2020 turned negative and the yield on 30-year gilts fell to 1.26% per annum.
The £70 billion is to be made up of £60 billion longer-dated Gilts and £10 billion corporate bonds. However, so far the Bank has had difficulty finding willing sellers of longer-dated Gilts, as pension funds and insurance companies wish to keep hold of these matching assets.
For schemes that have not hedged their interest rate exposure, it is likely that there will have been a deterioration in their funding level.