BREAKING: The Bank of England has waded into the “dysfunctional” bond market and says it will take steps to avoid “material risks” to Britain’s financial stability.
, on Wednesday kicking off a buying spree for long-dated UK sovereign bonds to contain spiralling yields and head off a looming financial crisis.
“The purpose of these [bond] purchases will be to restore orderly market conditions, The purchases will be carried out on whatever scale is necessary to effect this outcome.”The 10-year yield, which had soared past 4.5 per cent this week, dropped like a stone. Within half an hour of the BoE’s announcement, it was back down below 4.1 per cent, before bouncing back up above 4.2 per cent.
Just a week ago, the 10-year yield was under 3.4 per cent. But the government on Friday unveiled a £45 billion tax-cutting spree, to be funded by £72 billion of new debt issuance in the coming year alone. Unlike the government, the Bank is trying to restrain demand to pull inflation back from its near double-digit level. Markets are expecting a significant interest-rate increase in November, possibly as much as a full percentage point.
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