Sector movers: Life insurers pace losses, BoE says 'you've got three days'

Life insurers were at the bottom of the pile on Tuesday amid continued selling pressure in longer-term Gilts that forced the Bank of England to intervene for the second time in three days.

Citing a "material risk" to financial stability, the BoE said it would buy up to £5bn of index-linked debt per day, starting on Tuesday and expiring on Friday.

"Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability," it said.

The day before, Bank had increased the daily maximum purchase level to up to £10bn, although how its intervention was designed meant that uptake had thus far been more limited.

Furthermore, investors would not know until the end of October how exactly the government was aiming to get debt on a sustainable path lower to which one had to add the uncertainty ahead of the BoE's next policy meeting in early November.

In the background, the yield on the benchmark 10-year Gilt had dipped three basis points to end the day at 4.439%, while the pound slipped 0.26% to 1.0940.

Yields on the 30-year Gilt on the other hand jumped by 11 basis points, finishing at 4.79%, their session high.

Yields on 30-year inflation-linked bonds rose to over 1.5% earlier during the same week, versus 0.851% on 7 October, according to Tradeweb data, Dow Jones Newswires reported.

The selling was initially triggered by the Chancellor's announcement of a raft of unfunded tax cuts almost two weeks before.

It was made worse by so-called liability-driven investments, leveraged derivative-based strategies that came under pressure from margin calls due to the unforeseen rise interest rates, in turn prompting selling of Gilts and corporate debt by pension funds.

According to the Institute for Fiscal Studies think tank, his plan would require a £60bn reduction in public spending.

Downing Street said on Tuesday that the Prime Minister would not shelve the tax cuts included in the mini budget.

And after the close of markets in London, BoE Governor Andrew Bailey ruled out an extension of its £65bn intervention in the bond market into the following week.

Speaking at an event hosted by the Institute of International Finance Bailey stressed the need for the monetary authority to make patently clear that financial stability interventions would be temporary, lest they run counter to interest rate hikes.

"We've announced we will be out by the end of this week. My message to the [pension] funds is you’ve got three days left."

Top performing sectors so far today

Retailers 3,172.59 +0.86%

Leisure Goods 14,902.69 +0.67%

Personal Care, Drug and Grocery Stores 3,913.10 +0.51%

Beverages 27,846.97 +0.40%

Pharmaceuticals & Biotechnology 18,675.79 +0.27%

Bottom performing sectors so far today

Life Insurance 5,790.57 -4.08%

Industrial Transportation 3,054.13 -2.98%

Chemicals 10,870.62 -2.78%

Electricity 8,960.65 -2.34%

Industrial Metals & Mining 6,710.68 -2.01%