Buy bonds and add more code! The Bank of England warns that significant risks remain in the financial markets
Financial Associated Press, 11 October (by Niu Zhanlin) To avoid the collapse of pension funds, the Bank of England has taken a series of steps to intervene, but the UK bond market has not stabilized. Analysts believe the situation could get worse and the crisis could extend further.
On Tuesday (11 October) local time, the Bank of England warned that functional imbalances in the bond market and the underlying urge to sell 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 its emergency bond purchase program, including index-linked bonds as part of bond purchases, with the aim of restoring as soon as possible. the orderly functioning of the market as much as possible. A new round of the bank’s efforts to support pension funds has failed to alleviate investor concerns.
The Bank of England said it would buy up to £ 5 billion per day of index-linked gilts by Friday; on Monday he doubled the total amount of bonds he could buy per day to £ 10 billion.
British government bond yields declined following the announcement that index-linked bonds would be included in bond purchases, but remain close to where they were prior to the Bank of England’s first intervention.
Analysts are broadly expecting volatility in the UK bond market to continue in the coming weeks and not stabilize until at least October 31, when Chancellor of the Exchequer Quasi Kwarten unveils a fiscal plan. Kwarten announced on Monday that he would announce a tax plan ahead of schedule to address the turmoil in the financial markets, nearly a month before the original date.
The Bank of England itself admitted that despite its action, there was a further strong appreciation of UK government bonds, particularly index-linked gilts, on Monday.
“The failure of this market and the potential for a self-reinforcing ‘fire sale’ pose a significant risk to the UK’s financial stability,” the BoE said.
Roller Coaster Quotes
Despite the BoE’s efforts, nervousness in bond markets persisted, several strategists said, due to the limited time horizon for its intervention and the tightening cycle of the central bank. Others highlighted uncertainty about 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 Equiti Capital brokerage, said a number of Bank of England statements since its first speech suggested it may have lost its grip on the UK government bond market.
Cole stressed: “The Bank of England needs to tighten monetary policy to try to bring inflation back into target range, but at the same time it is effectively doing a new round of quantitative easing. And so far we have not received any signals from the government. , indicating that it is considering the permanent abolition of its tax cuts. “
Analysts believe the market stinks of blood: if the Bank of England insists on its tightening policy, it stops intervening in the government bond market at maturity and the government fails to respond effectively, the yield on UK government bonds it will only increase all the way.
With the end of the temporary bond buying program, the volatility of the bond market has not decreased significantly. James Athey, Abrdn’s investment director, said that whatever the BoE eventually decides to do, it will be a “roller coaster” in the next few days.
