Buy bonds and add more code!Bank of England warns that significant risks remain in financial markets
Financial Associated Press, October 11 (Editor Niu Zhanlin) In order to avoid the collapse of pension funds, the Bank of England has taken a number of measures to intervene, but the British bond market has not stabilized. Analysts believe the situation might get worse and the crisis might spread further.
On Tuesday (October 11) local time, the Bank of England warned that functional imbalances in the bond market and the underlying impetus to sell off at low prices still pose significant risks to the stability of the country’s financial markets.
On the same day, in order to further stabilize the market, the Bank of England further expanded the emergency bond purchase program, including index-linked bonds into the scope of bond purchases, with the purpose of restoring the orderly operation of the market as soon as possible. A fresh round of the bank’s efforts to provide support to pension funds failed to ease investor concerns.
The Bank of England said in a statement it would buy up to £5bn a day of index-linked gilts by Friday; on Monday it doubled the total amount of bonds it might buy a day to £10bn.
Yields on British government bonds fell following the announcement that index-linked bonds would be included in bond purchases, but remain close to where they were before the Bank of England’s first intervention.
Analysts widely expect volatility in the UK bond market to continue in the coming weeks and not to stabilise at least until October 31, when Chancellor of the Exchequer Quasi Kwarten unveils a fiscal plan. Kwarten announced on Monday that it would announce a fiscal plan ahead of schedule to deal with financial market turmoil, nearly a month earlier than the original date.
The Bank of England itself admitted that despite its action, there was a further sharp revaluation of British government bonds, particularly index-linked gilts, on Monday.
“The failure of this market, and the potential for a self-reinforcing ‘fire sale’, poses a significant risk to UK financial stability,” the BoE said.
Roller Coaster Quotes
Despite the BoE’s efforts, jitters in bond markets persisted, several strategists said, due to the limited time horizon for its intervention and the central bank’s tightening cycle. Others pointed to uncertainty over the UK government’s ability to rebuild the credibility of its fiscal policy by the end of the month.
Stuart Cole, chief macro economist at brokerage Equiti Capital, said a series of statements by the Bank of England since its first intervention suggested it may have lost its grip on the UK government bond market.
Cole pointed out: “The Bank of England has to tighten monetary policy to try to bring inflation back into target range, but at the same time it is actually doing a new round of quantitative easing. And so far we haven’t gotten any signs from the government. , indicating that it is considering an outright repeal of its tax cuts.”
Analysts believe that the market smells blood. If the Bank of England insists on its tightening policy, stops intervening in the government bond market when it expires, and the government does not respond effectively, the yield of British government bonds will only rise all the way.
With the temporary bond-buying program coming to an end, bond market volatility has not diminished significantly. James Athey, investment director at Abrdn, said whatever the BoE ultimately decides to do, it will be a “roller coaster” in the coming days.
