Bank of England sets in place new measures to tame market instability

Following the announcement of the mini-budget, the pound hit record lows and investors demanded a higher returns for investing in government bonds, causing some to rapidly drop in value.

The Bank quickly intervened, buying government bonds. The BoE said it would buy upwards of £65bn bonds. So far, they have only bought around £5bn bonds in total under the programme. Plans are in place to end these operations on the 14th of October, with measures to attempt to bring an “orderly end” to the emergency bond buying scheme.

In the latest announcement the Bank of England it said stood ready to increase the size of its daily purchases doubling to £10bn.

With the end of the Bank’s bond-buying programme in sight, concerns have been raised that volatility could return to the market once the scheme ends.

Joshua Raymond, director at financial brokerage XTB comments:“I’m not so sure that this is a good sign to be frank. We should remember that market interventions of this type by the central bank are not normal. It is extraordinary and the fact the BoE needs to increase the daily level of liquidity for its remaining five auctions shows that its initial interventions were unsatisfactory.

“On the one hand, this does show the BoE are ready to act and be more agile than their previous responses to rising inflation has shown. On the other hand however, the fact they have had to increase its daily auction liquidity sizes suggests they may have lost some degree of credibility in the market.

“Long dated gilt yields have been rising once again since last week to uncomfortable territory with the 30yr bond yields rising back to 4.4%. This comes despite the double u-turn by the Treasury to cancel the 45p tax cut and bring forward OBR forecasts to later this month.”

By Mark Adair – Correspondent, Bdaily

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