UK 10-year yield rises to 4.5% as Bank of England hits back

UK 10-year yield rises to 4.5% as Bank of England hits back

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The Bank of England announced on Tuesday 11 October that it would extend its purchases of UK debt to “indexed bonds” due to the continuing “dysfunctions” in the markets, which had been thrown into turmoil by the presentation of a comprehensive package of measures. budgets for Liz Truss’s government. The monetary institution had on September 28 launched a program to buy back long-term Treasury bills of up to 65 billion pounds and had already increased the maximum size of its daily buybacks to up to 10 billion pounds on Monday. , among other measures. Despite Monday’s announcements, the “dysfunctions” that continued particularly in this indexed bond market posed “a significant risk to the financial stability of the United Kingdom”, the Bank of England noted in a press release.

The central bank’s intervention to calm the treasury bill market, which was at risk of a liquidity crisis and threatened to spill over into the credit conditions of households and companies, runs until Friday as previously announced. The operations, unveiled on Tuesday, “will serve as an additional safety net to restore orderly market conditions,” the Bank of England said. The bank’s actions are particularly aimed at long-term UK treasury bond derivative funds (LDIs), some of which are at risk of bankruptcy due to a sudden collapse in the value of long-term treasury bills, combined with skyrocketing government borrowing rates.

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The Bank of England (BoE) announced on Monday that it had only bought back £5 billion of bonds so far. Liz Truss’s new government had spooked financial markets by presenting a “mini-budget” on 23 September consisting of a huge support for electricity bills combined with significant tax cuts, without these actions being fully costed or funded. . The executive had also tried to reassure investors on Monday.

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Chancellor of the Exchequer Kwasi Kwarteng, in the face of repeated calls from economists and parliamentarians, has tabled the release of budget forecasts for October 31 instead of the originally planned November 23. At the same time, it will announce measures over the medium term to ensure that UK public finances remain on a sustainable path. However, investors were not reassured given 30-year Treasury yields, which continued to rise throughout the session on Monday, reaching 4.68% by the end of the session at 16:00 GMT, showing distrust in the UK debt.

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