It’s a good question, but actually it doesn’t seem like it’s a notional ‘mark to market’ problem. Rather, if looks like it’s a funding/refunding problem. If the Bank funded a 0.4% asset short term and now finds itself refunding that holding at 4%, the losses get booked anyway. The fact that BoE is crystallising the losses now and is doing sensitivity analysis using Bank Rate assumptions strongly suggests the refunding is how the hit gets taken. Basically, it gets you one way or the other - (same maths, essentially).
Yes, so that would be where the maturity profile point comes in I suppose, with more than is ideal looking like it's been done on short tenors. Absolutely bonkers situation! I know there was a lot of fast moving decision making in the fog of war of the Covid response (that the response was a gross overreaction and arguably the biggest collective policy error ever, is another story) but to not have anyone internally to state the issues with the design of this programme or do any sensitivity analysis in a rate rise environment, is off the scale tragic.
These politicians and civil servants shouldn't be trusted to run a bath, never mind multi-billion pound financing and debt programmes!
What does it say about our media environment that it takes a substack site written by someone in their spare time to highlight the problem? Where is the FT? Where is The Economist? Where are these people? What do they do with themselves all day?
They're mainly co-opted, useful idiots, who treasure their access to elite circles and society, more than the moral imperatives of a being a journalist; one of which is to provide citizens with the truthful, objective information we need to assist our decision making towards the authorities and government.
I've found that substack is, in many cases, where the brains and honest writers are to be found these days. It's just a shame that the intellectually (and in many cases morally) bankrupt, if not outright corrupt, mainstream media is still the go to for the vast majority of people 👎🏻
As you say, not sure of the maturity profile, but if they're holding the bonds to maturity, why does the capital loss matter in the interim? Or are the positions being actively traded and the losses are, therefore, crystallised?
Not sure of the accounting practices of the BoE or APF but financial statements, generally, wouldn't be impacted by unrealised gain/loss on a Held to Maturity bond? So why are they in this instance, unless the entire portfolio is marked to market and being actively turned over?
It’s a good question, but actually it doesn’t seem like it’s a notional ‘mark to market’ problem. Rather, if looks like it’s a funding/refunding problem. If the Bank funded a 0.4% asset short term and now finds itself refunding that holding at 4%, the losses get booked anyway. The fact that BoE is crystallising the losses now and is doing sensitivity analysis using Bank Rate assumptions strongly suggests the refunding is how the hit gets taken. Basically, it gets you one way or the other - (same maths, essentially).
Yes, so that would be where the maturity profile point comes in I suppose, with more than is ideal looking like it's been done on short tenors. Absolutely bonkers situation! I know there was a lot of fast moving decision making in the fog of war of the Covid response (that the response was a gross overreaction and arguably the biggest collective policy error ever, is another story) but to not have anyone internally to state the issues with the design of this programme or do any sensitivity analysis in a rate rise environment, is off the scale tragic.
These politicians and civil servants shouldn't be trusted to run a bath, never mind multi-billion pound financing and debt programmes!
What does it say about our media environment that it takes a substack site written by someone in their spare time to highlight the problem? Where is the FT? Where is The Economist? Where are these people? What do they do with themselves all day?
They're mainly co-opted, useful idiots, who treasure their access to elite circles and society, more than the moral imperatives of a being a journalist; one of which is to provide citizens with the truthful, objective information we need to assist our decision making towards the authorities and government.
I've found that substack is, in many cases, where the brains and honest writers are to be found these days. It's just a shame that the intellectually (and in many cases morally) bankrupt, if not outright corrupt, mainstream media is still the go to for the vast majority of people 👎🏻
As you say, not sure of the maturity profile, but if they're holding the bonds to maturity, why does the capital loss matter in the interim? Or are the positions being actively traded and the losses are, therefore, crystallised?
Not sure of the accounting practices of the BoE or APF but financial statements, generally, wouldn't be impacted by unrealised gain/loss on a Held to Maturity bond? So why are they in this instance, unless the entire portfolio is marked to market and being actively turned over?
A superb analysis. I'm unsure even Tesco would have him.