XPS Pensions flags oil-driven inflation as trigger for Q3 global bond selloff and higher yields
TLT•XPS Pensions Group analysis flagged a Q3 global bond selloff as inflation expectations rose with Brent crude reaching $100. Central banks raised or held rates, while higher gilt yields improved UK defined-benefit pension scheme funding on a low-risk basis.
1. Bond market pressures
XPS Pensions Group analysis flagged a Q3 global bond selloff driven by higher inflation expectations tied to Brent crude rising to $100. The US Treasury doubled long-term bond buybacks in August to curb financing costs as yields climbed.
2. Central bank decisions
The Federal Reserve raised rates by 0.25 percentage points to 3.75%-4.00%, with four more hikes priced over 12 months. The European Central Bank raised its rate to 2.5%, and the Bank of Japan raised its rate to 1.25%. The Bank of England held Bank Rate at 3.75% despite UK CPI inflation of 3.1% in the 12 months to August.
3. UK pension funding
UK defined-benefit pension scheme funding improved on a low-risk basis as higher gilt yields reduced liabilities. Liability-driven investment recapitalization remained muted.
