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Bank of England launches bond-buying programme to prevent ‘material risk’ to UK financial stability | Business News



The Bank of England has launched a temporary bond-buying program as it takes urgent action to avert “physical risks” to the UK’s financial stability.

It revealed that it will buy as many long-term government bonds as needed between now and October 14 in an attempt to stabilize financial markets amid the turmoil following the small budget. government last Friday.

Besides the drop in the value of the pound, investors have also seen investors demand a larger yield on UK government bonds – essentially IOUs.

That’s because the level of borrowing needed to finance government give-ups, including tax cuts and energy support for households and businesses, has shocked markets, which immediately question the sustainability of public finances.

“If this market turmoil continues or worsens, there are significant risks to the UK’s financial stability,” the bank said in a statement.

“This will lead to unwarranted tightening of financial conditions and a reduction in credit inflows into the real economy.”

The program marks the Bank’s first policy intervention as it battles to reduce inflation and alleviate the cost of living crisis. Its chief economist signaled on Tuesday that a “significant” rise in the Bank rate was also likely ahead.

The government’s growth plan is only seen as putting more inflationary pressure on the economy, making it difficult for the Bank’s mandate.

The bank said the bond purchases, which would be fully covered by the Treasury in the event of any loss, were designed to restore orderly market conditions.

It added that it will resell the bonds it purchased once market conditions stabilize.

The notice was certainly effective immediately.

The data showed that the yield on the 30-year bond fell back to 4.3%, having risen above 5% not seen since 2022 earlier in the day.

The 10-year yield fell back below 4% from 4.6%.

In addition to its bond purchases, the Bank said it would postpone the initiation of efforts to shorten the sale of bonds it acquired through the financial crisis and crisis-era quantitative easing. COVID.

The bank has planned to reduce its £838 billion gilt holdings to £80 billion over the next year.

Neil Wilson, chief market analyst at Markets.com, said the Bank’s move followed evidence of “severe liquidity stress” in the bond market.

“The question is whether (this) will have an impact on longer-term stability or whether the market will test the Bank’s resolve again.

“We are currently seeing Banks catching up to the market and this may not lead to any downside volatility,” he warned.



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