December 8, 2022

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The Bank of England postpones the sale of bonds and launches a temporary purchase program

The Bank of England postpones the sale of bonds and launches a temporary purchase program

The central bank said it had been monitoring a “significant repricing” of British and global assets in recent days.

Bloomberg | Bloomberg | Getty Images

LONDON – IN Bank of England He will suspend the planned start of his gold sale next week and temporarily start buying long-term bonds in order to calm market chaos unleashed by the new government’s so-called “mini-budget”.

British Treasury yields were on track for their biggest monthly rise since at least 1957 as investors fled Britain’s fixed income markets after the new fiscal policy announcements. Great measures included Vast areas of unfunded tax cuts that sparked international criticism, Including from the International Monetary Fund.

In a statement on Wednesday, the central bank said it had been monitoring a “significant repricing” of British and global assets in recent days, which has particularly affected the UK’s long-term government debt.

“If the dysfunction in this market persists or worsens, there will be a material risk to the UK’s financial stability. This would lead to an unjustified tightening of financing conditions and reduce the flow of credit to the real economy,” the Bank of England said.

“In line with its financial stability objective, the Bank of England stands ready to restore market performance and reduce any risk of contagion to credit conditions for UK households and businesses.”

From Wednesday, the bank will start temporary purchases of long-term British government bonds in order to “restore orderly market conditions”, and said these operations would be carried out “on any scale necessary” to calm markets.

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The Bank’s Financial Policy Committee acknowledged on Wednesday that the dysfunction in the gold market poses a material risk to the country’s financial stability, and chose to take immediate action.

The bank said the Monetary Policy Committee’s target of an annual reduction of 80 billion pounds ($85 billion) for its gold holdings remains unchanged, with the first gold sales – tentatively scheduled for Monday – to start on October 31.

A UK Treasury spokesman confirmed the operation had been “fully compensated” by the Treasury, and said Finance Minister Kwasi Quarting was “committed to the independence of the Bank of England”.

“The government will continue to work closely with the bank to support its financial stability and inflation targets,” the spokesman added.

The bank said it will publish a market notice outlining the program’s operational details “soon.”

yield on UK 30 year bonds And the 10 year gold bond It fell more than 30 basis points after the announcement.