Bank of England will buy long-term UK bonds as needed to calm markets – Bloomberg

The Bank of England (British Central Bank) will purchase long-term government bonds in the UK starting on the 28th. The central bank announced on the same day that it would buy what is needed to restore an orderly market environment. Respond to the impact of Prime Minister Truss’s historic tax cut plan.

Following the announcement, 30-year UK bond yields headed for their largest ever decline. The central bank also said it will delay the start of the sale of its holdings in sovereign bonds (QT), scheduled for October 3, until October 31. The 30-year bond yield was briefly at its highest level since 1998 prior to the announcement.

The move was recommended by the central bank’s Financial Executive Committee (FPC) because it could pose a “significant risk” to financial stability if market dysfunction persists, they said. Such conditions “will lead to an unreasonable tightening of financial conditions and less credit to the real economy,” the central bank said. He said it wasn’t a monetary policy decision.

The central bank’s decision was driven by fears that collateral calls could cause a further collapse in British bonds in the afternoon, a person familiar with the decision said.

The central bank has been warned in recent days by several investment banks and wealth managers that requests for collateral could lead to forced sales and increase bond yields, people said, who asked not to be identified.

The action of the Bank of England, the fear of a sharp decline in government bonds due to collateral – people involved