Which ETFs Will Be Boosted by the Bond Buying?

ETF and passively-managed tracker funds are the perfect way to gain access to the rallying bond market, says Morningstar's Jose Garcia Zarate

Jose Garcia Zarate 12 August, 2016 | 2:42PM
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The outlook for the UK economy has been revised down in the wake of the vote in favour to leave the EU. To address that risk, the Bank of England decided at its August 2016 meeting to provide further monetary stimulus, bringing interest rates to a new historical low of 0.25% and expanding the quantitative easing programme by £70 billion, of which £10 billion in corporate bonds and the remainder in the gilts.

Judging by initial market trends, the new tranche of QE – not to mention the expectation that it might be further increased – could exert considerable downside pressure on gilt yields across the maturity spectrum for the duration of the programme of purchases.

This is exactly what the Bank of England wants. Indeed, forget gilts – easier said than done for the less than cheerful pension fund and insurance sector – the ultimate goal is to entice investors to switch from government onto corporate debt, with a view to ease financing terms as much as possible for UK Ltd to ride out these uncertain times. So, corporate debt – assuming that QE achieves its goal – is where the key tactical opportunity may lie.

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Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe