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February month-end rebalance of the iBoxx GBP Index, was
dominated by a departure of one UK's government gilt. A total of
GBP 37.25 billion of notional departed the index last month,
majority of which came from a GBP 33.83 billion single of a UK note
with about a year to maturity.
Nine bonds were deleted from the index, and 12 added, with a
total notional of GBP 7.95 billion. One bond was impacted by a
rating change, with Meadowhall Finance PLC seeing its rating nudged
down from AA to BBB.
The iBoxx GBP index has two bonds with Russia as the country of
risk, both in the corporate space, including bonds by Gazprom and
Russian Railways. The two of them stayed in the index in this
rebalance, in accordance with the present state of sanctions. The
full communication by iBoxx on the ongoing crisis can be accessed
here.
Financial markets became gripped with the Russia-Ukraine war end
of February, which also reverberated in the sterling debt
market.
Last month the iBoxx GBP index extended monthly negative
returns, albeit at a slower rate than seen in January. The
corporates category led the declines last month, as opposed to
gilts in January. The dismal performance of the Oil&Gas sector
was led by Gazprom, which saw its bond plunge more than 60%
month-on-month. The BBB-rated note with April 2024 maturity also
weighed on the returns of other BBB-rated maturities. For the
overall iBoxx GBP index shorter duration and higher quality bonds
performed better month-on-month. Gilts in the 3-5 maturity bucket
even turned a positive return, and all the gains came in the last
trading day.
But February started with a different focus for the GBP market,
as Bank of England hiked the base rate after UK's inflation surged
in January to 5.5%, the highest since March 1992. Further increases
are expected this year, but the rapidly evolving Ukraine crisis is
putting a spinner into this process. Now the trajectory and the
peak level for UK's inflation are becoming more elusive it remains
to be seen how quickly central banks - not only BoE - will continue
to tighten their policies.
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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
