Bank of England confirms that it ends its intervention in the bond market despite market volatility

The Bank of England (BoE) maintains its position of ending its intervention in the bond market on Friday, despite press reports about an extension, which once again unleashed nervousness among investors and a rise in government debt rates.

The diverging signals pushed the UK government’s 30-year Treasury bond rate above 5%, a level not seen in 20 years, which is a sign of investors’ loss of confidence in British economic policy.

“As the (central) Bank clearly indicated from the beginning, the temporary and selective purchases of Treasury bonds will end on October 14,” the issuer announced in a statement.

The governor confirmed this position yesterday (Tuesday) and this was made absolutely clear in contacts with the banks at the highest level,” the financial institution added.

The Financial Times newspaper reported on Wednesday, citing anonymous sources, that the central bank “privately indicated to bankers that it could extend its emergency bond-buying program beyond Friday’s deadline” if market conditions demand it. .

The London market is facing an episode of financial instability since the announcement of a budget plan that involved heavy indebtedness, announced by the government headed by the prime minister Liz Truss.

This program ran counter to the mandate of the central bank fighting record inflation of nearly 10% in the UK.

mixed signals

To try to calm the markets and counteract a “significant risk to the financial stability of the United Kingdom”, the monetary institution had to intervene as of September 28 by buying long-term Treasury bonds, managing to stop the rise in yield.

But afterwards, the yield renewed the upward trend, implying a nosedive in the prices of these bonds.

This rise in 30-year Treasury bond yields is creating a major destabilization in the UK as it is influencing pension funds.

On Tuesday in a statement on Tuesday, the UK Pension Funds Association (PLSA) urged the issuer to prolong its intervention until the next presentation of the budget on October 31, the date on which economists and investors expect to see a change of course in public finance issues and savings measures.

The BoE recalled on Wednesday that it does not directly supervise pension funds and said that “lessons must be learned” from the current crisis and that “adequate levels of resistance must be found” for market players.