Emergency bond buying by the Bank of England is being implemented to stop a slide in British government bonds. The buying commenced on Wednesday.
“… the Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets,” the Bank of England said in a statement.
“This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt. Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses.
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“To achieve this, the Bank will carry out temporary purchases of long-dated UK government bonds from 28 September. The purpose of these purchases will be to restore orderly market conditions. The purchases will be carried out on whatever scale is necessary to effect this outcome. The operation will be fully indemnified by HM Treasury.”
The Bank intends to keep purchasing government bonds until mid-October.
Analysts said the move aimed to halt the damage from a sell-off in U.K. government debt in recent days and stop the losses from running out of control.
Early buying had stabilised bond prices. The U.K.’s 30-year government bond yield sank to 3.93%, from over 5% before the announcement.
Prime Minister Liz Truss’s government had announced a 45-billion-pound range of tax cuts as a measure to seed economic growth, but was not matched by any spending cuts which raised concerns about swelling government debt and pressure on already high inflation rates.
After the tax cut announcement, the British pound fell to a record low against the US dollar on Monday, to $1.0373. This was matched by investor concern about the government’s policies, which also include borrowing billions to help shield homes and businesses from record energy prices.
