The Bank of England decided to intervene in the bond market after extremely volatile European markets over the past few days and the euro and pound sterling plunged against the US dollar. Yields on British government bonds were volatile and the pound sterling fell to lifetime lows against the greenback. On Wednesday, the Bank of England noted that it is monitoring “significant re-pricing” of British assets very closely.
Bank of England opens the stimulus floodgates again – central bank intervenes in UK bond market
The Bank of England (BOE) announced on Wednesday that it will temporarily begin buying long-term bonds, halting the central bank’s recently deployed quantitative tightening tactics. The day before yesterday, the British home currency, the pound, fell to an all-time low against the U.S. dollar, plunging toin Wednesday’s early morning (ET) trading session. 1.0541
Yields on U.K. government bonds have been rising sharply in recent days, suffering from the same volatility as U.S. Treasuries. UK yields have experienced their biggest rise since 1957, and in a statement on Wednesday, the BoE said it is monitoring the situation very closely. The BoE said on Wednesdaythat “a continuation or worsening of this market dysfunction would pose significant risks to the financial stability of the United Kingdom.” The British central bank added,
“This would lead to an unwarranted tightening of funding conditions and a reduction in the flow of credit to the real economy. In line with its financial stability objectives, the Bank of England stands ready to restore market functioning and reduce risks from contagion to the credit conditions of UK households and businesses.” He stated.
This move by the BOJ follows a similar move by the BOJ six days earlier. After the Japanese yen fell to a 24-year low, Japan’s central bank decided to intervene in the foreign exchange market. The yen rebounded following this intervention, and on Wednesday the pound also reboundedagainst the greenbackafter the BOE announced that it would begin temporary purchases of long-term British government bonds.
At the time of writing, the pound is trading at a nominal USD per unit and has fallen 0.61% over the past 24 hours, detailing that the BOE plans to intervene “on whatever scale is necessary” to “restore an orderly market environment.”
What do you think about the Bank of England intervening in the UK bond market? What do you think about the performance of the pound against the U.S. dollar? Let us know what you think about this subject in the comments section below.
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