The yield on 10-year debt has returned to its level at the end of September, at just under 3.5%, even if this level remains historically high.
The British debt market, whose long-term rates had soared at the end of September after the government’s announcement of a “mini-budget” which had panicked the market and forced the Bank of England (BoE) to intervene, has returned to its pre-crisis level.
“After the events of late September and early October, there was a risk premium” which made long-term British borrowing more expensive, central bank governor Andrew Bailey commented on Monday during a hearing before the parliament.
“My opinion is that this phenomenon has disappeared, we are back to where we were before,” he added.
The yield on 10-year debt, the market benchmark, has indeed returned to its level at the end of September, at just under 3.5%, even if this level remains historically high.
The government of then Prime Minister Liz Truss had announced ultra-costly but uncosted budgetary measures, causing a stir in the market, with borrowing rates which had risen to 4.63%, while the 30-year debt, less liquid, had soared to 5.14% at the end of September.
The BoE then intervened by buying long-term securities at the end of September and the beginning of October, for a final amount of 19.3 billion pounds (23.55 billion dollars at the current exchange rate).
In a letter from Mr. Bailey to Finance Minister Jeremy Hunt, the governor specified that the profit made on this sale by the BoE would be included in a quarterly transaction between the Chancellery and the central bank.
While the BoE made a profit on this transaction, it is currently selling at a loss the bonds acquired under its asset purchase program, which had reached up to 895 billion pounds during the COVID-19 pandemic.
The Bank of England is selling its securities as part of its fight against inflation, which exceeds 10% in the United Kingdom. This battle has also pushed it to raise its rates since the end of 2021.
The Bank of England’s chief economist, Huw Pill, admitted on Tuesday that inflation “had the potential to be more persistent”, while the monetary institute had so far expected a rapid decline that would begin in the second half.