Business The Bank of England intervenes in the debt markets due to the...

The Bank of England intervenes in the debt markets due to the repricing of British bonds

Archive – 04 August 2022, United Kingdom, London: Governor of the Bank of England, Andrew Bailey, presents the Bank of England’s financial stability report, at the Bank headquarters in London. Photo: Yui Mok/PA Wire/dpa – Yui Mok/PA Wire/dpa – File

The Bank of England has decided to intervene in an emergency in the debt markets to stop the repricing of British bonds that has occurred in recent days after the Government’s announcement of a program of tax cuts that has been criticized both by the IMF as by Moody’s agency.

“The Bank is closely monitoring developments in the financial markets in light of the significant appreciation of UK and global financial assets,” the monetary authority said in a statement.

Although the agency is immersed in a process of reducing its balance sheet after several years of asset purchases, at a rate of 80,000 million pounds (89,401 million euros) per year, the Bank of England will temporarily restart net purchases.

Thus, the entity plans to buy government bonds, especially those with longer maturities, in the secondary debt markets between September 28 and October 14. The goal is to restore orderly market conditions and prevent contagion to credit conditions for households and businesses.

“If the dysfunction in the market continues or worsens, there would be a material risk to the financial stability of the United Kingdom. This would lead to an unwanted tightening of financing conditions and a reduction in the flow of credit to the real economy”, has warned the Bank of England.

The agency has stressed that the purchases will be limited in time and will not affect its goal of reducing the balance. However, purchases during the next two weeks will be of the amount necessary to be effective.

The Bank of England has insisted again this Wednesday that the Monetary Policy Committee will examine macroeconomic conditions, including the implications of the Government’s fiscal plans, at its next monetary policy meeting, to be held on November 3, and will act appropriately.

The yield on the British bond with a maturity of 10 years in the secondary debt markets had rebounded even higher in the first hours of trading, reaching 4.591%, after having closed on Tuesday at 4.506%. This represents the highest return offered to investors since 2008.

After the statement from the Bank of England, interest has fallen to 4.015%, although a few minutes later it has recovered part of the lost ground by standing at 4.242%.

Regarding the 30-year British bond, this Wednesday it has reached its highest yield since 1998. Specifically, it has climbed to an intraday maximum of 5.142%, after having closed on Tuesday at 4.988%. The intervention of the British monetary authority has sunk the yield to an intraday low of 4.263%.

Source: Europa Press

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