Bank of England seeks to stem bond market turmoil

 

The Bank of England sought to quell a fire-storm in the British bond market, saying on Wednesday it would buy as much government debt as needed to restore financial stability after chaos triggered by the new government’s fiscal policy. 

Having failed to cool the sell-off with verbal interventions over the previous two days, the BoE announced an emergency move that it said would prevent the turmoil in markets from spreading through the country and seizing up credit flows. “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability,” the central bank said in a statement that immediately eased pressures on soaring British government bond yields. 

The rare intervention about a G7 country from the IMF, the global lender of last resort, underscored the severity of the situation facing Britain, with the value of the pound and British bonds collapsing since Friday. Earlier on Wednesday 30-year British government bond yields rose above 5% for the first time since 2002. Following the BoE statement, 30-year yields dropped more than 50 basis points on the day. 

The IMF said the proposals, which sent the pound to an all-time low of $1.0327 on Monday, would add to a crisis of credibility after the government cut taxes and hiked borrowing just as the Bank of England lifts interest rates to tackle surging inflation.