BOE’s Messaging Is Under Fire as Hawkish Pivot Fuels Bond Rout

k)ed95lz2tdu1jg81xuh4z2a_media_dl_1.png Bloomberg

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(Bloomberg) — The Bank of England’s revamp of its communication policy to include the views of individual rate setters is getting criticized by market analysts on concerns it helped fuel a selloff in UK bonds.

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The central bank’s statement on Thursday included comments from each of the nine-member policy committee, showing that officials previously pushing for interest-rate cuts are now considering hikes. That fanned the slide in gilts, according to analysts at Citigroup Inc. and Bank of Montreal, with benchmark yields surging further on Friday to the highest since 2008.

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“The BOE communication style may have exacerbated the market reaction,” said Jamie Searle, a strategist at Citigroup. “While offering greater transparency, it arguably means less control of the overall messaging as the market reacts to individual comments.”

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The new communication policy was only introduced in November, and is a rare disclosure among major central banks. Combined with the BOE’s overall stance of being “ready to act” in response to an energy-price surge, the hawkish pivot led traders to amp up bets on rate hikes to see three this year, up from just one previously.

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Two-year gilt yields, among the most sensitive to monetary policy, spiked by the most since 2022 on Thursday. They also led the renewed selloff on Friday, which drove 10-year borrowing costs to the highest in 17 years.

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Reads more: UK Borrowing Costs Soar to Highest Since 2008 on Oil Shock

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The concern among market analysts is that giving each official space to express their own perspective may overload investors and distract from the overarching message the institution wants to send — especially when the BOE’s monetary stance is in flux. 

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Laurence Mutkin, the Bank of Montreal’s head of EMEA rates strategy, says the BOE should ditch what he calls the “mini-manifestos” of Monetary Policy Committee members to avoid future communication mishaps.

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A BOE spokesperson declined to comment.

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In an interview broadcast after Thursday’s announcement, Governor Andrew Bailey cautioned against “reaching any strong conclusions” about the possibility of UK interest-rate hikes. While that trimmed the gilt selloff, two-year yields still ended the day over 30 basis points higher.

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“Markets are clearly testing the BOE, who are lacking credibility after a weak response to the 2022 energy crisis,”said MFS fixed income research analyst Annalisa Piazza. “They flip-flop often and you can see that in their latest commentary.”

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Unnecessary Volatility

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The BOE’s new disclosure policy follows a far-reaching review by former US Federal Reserve chair Ben Bernanke, which found that the central bank’s communications were lacking. Bailey welcomed the report and said he would pursue a “once-in-a-generation” shake-up of the bank’s practices.