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Fight against high interest rates: Bank of England announces purchase of government bonds

2022-09-28T14:19:21.741Z

The British financial system is in a state of turbulence: the pound has recently come under increasing pressure and government bond yields have risen sharply. Now the Bank of England is intervening in the capital market.



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Headquarters of the Bank of England in London: Treasury purchases until October

Photo: Toby Melville / REUTERS

The British central bank is taking action against the recent strong rise in yields on the domestic capital market.

Due to disruptions in this market segment, government bonds with long maturities are to be purchased immediately, as the Bank of England announced on Wednesday.

An upper limit was not mentioned, but the purchases should take place for a limited time until mid-October.

Yields on long-dated UK government bonds have risen significantly over the past few days.

Buyers of UK government bonds are therefore asking significantly more for taking the risk of lending money to the UK government.

Experts cite the strong tax cuts that the new government of Prime Minister Liz Truss is aiming for as the reason.

A significant increase in government debt and an increase in the already very high inflation are feared.

Both have been reflected in sharply rising interest rates on the capital market, especially in the long maturities.

The British pound has recently come under considerable pressure on the foreign exchange market.

The current intervention in the bond market is tricky because the central bank actually wanted to start selling its large bond portfolio in the coming week.

The start of the planned sales process, which together with the rising key interest rates amounts to a tightening of monetary policy, is to be postponed to the end of October.

Pound jumps up and then plummets again

UK financial markets reacted nervously to the announcement.

The pound initially jumped around 1 percent to $1.0837, but then immediately plummeted back to $1.0685.

At the same time, investors grabbed British government bonds, which caused the yields, which had been soaring in the past few days, to come down.

The yield on the particularly interest-sensitive two-year British bonds fell to 4.278 percent from the previous 4.550 percent.

The interest on the ten-year paper dropped to 4.373 from 4.558 percent.

sol/dpa-AFX/Reuters

Source: spiegel

All business articles on 2022-09-28

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