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Bank of England in London: Investments of up to ten billion pounds a day
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MAJA SMIEJKOWSKA / REUTERS
The crisis in the British bond market is intensifying.
On Tuesday, the Bank of England adjusted its emergency purchases to support the market for the second straight day.
After increasing the purchase volume on Monday, on Tuesday it expanded the group of papers to be bought.
In addition to long-term government bonds, the central bank now also wants to purchase government bonds that are linked (indexed) to the inflation rate.
In addition, the sale of corporate bonds will be suspended for this week, said the monetary authorities in London.
As already announced on Monday, up to ten billion pounds are to flow into government bonds every day until the end of the current week.
However, the maximum amount is now divided equally between long-dated government bonds and inflation-linked bonds.
The reason for the change may be that there had been disruptions on the market for inflation-indexed paper at the beginning of the week.
Intervention by the Bank of England in this market is extremely unusual.
In addition, the long-running sale of corporate bonds, which the central bank last bought during the pandemic to support the economy, will be suspended.
The start of the new emergency purchase program at the end of September was already very inopportune for the central bank, because it actually wanted to start selling government bonds from its holdings around that time in order to further tighten its monetary policy.
This sale is also currently suspended.
The Bank of England's emergency intervention was made necessary by the significant rise in yields on long-dated British government bonds.
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.
In addition, the pension funds threatened to get into trouble as a result of the development.
Pound down
The developments were reflected in sharply rising interest rates on the capital market, especially in the long maturities.
As a result, the British pound came under considerable pressure on the foreign exchange market.
With the decision to expand support purchases, it plummeted again, losing up to 0.5 percent to $1.0996.
sol/dpa-AFX