The Bank of England will intervene in the UK bond market by buying government bonds in the face of 'tangible risks to financial stability' in the UK, whose borrowing rates have soared since very expensive budget announcements on Friday .
"The Bank will make purchases of government bonds with long maturities" from Wednesday in order to "restore normal market conditions", said the BoE in a press release on Wednesday, specifying that this "operation will be entirely financed by the Treasury".
"The Chancellor has authorized the Governor's request for financing of the operation, which will allow the financial conditions to remain accessible to households and businesses", confirms the British Treasury in a separate press release.
“Purchases will be made in the volumes necessary to achieve our goal” of market stability, but will on the other hand be limited in time, details the BoE, with an end to purchases on October 14, before the purchased securities are then put back on the market. the market gradually.
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This direct intervention by the central bank comes after several turbulent days for the British market: on Friday, the new government of Liz Truss announced measures to support the economy and very costly tax cuts, evaluated by economists at a amount between 100 and 200 billion pounds, but whose financing and impact remain unclear.
Signaling investor mistrust of British assets, the pound plunged to an all-time low on Monday, just over $1.03, and the yield on government debt, which rises when demand falls, flew.
“The market movement has been exacerbated since yesterday and particularly affects long-term debt.
If this market dysfunction continues or worsens, it would pose a real risk to the financial stability of the United Kingdom”, explains the BoE.
The 30-year bond rate, which was around 3.5% at the start of last week, soared to reach 5.14% at the start of the session, a peak since 1998, before falling to 4.43% after announcements from the BoE.
10-year bonds followed the same trend, falling to 4.15% after hitting a high since 2008 at 4.59%.
