BOE: Unlimited long-term gilt purchases to calm the market

The Bank of England said it will step into the market to buy long-term government bonds from wednesday to help restore order in the market. According to this;

-The purpose of these purchases will be to restore regular market conditions. Acquisitions will be made at the scale necessary to impact this outcome.

The central bank also said it will delay the start of quantitative tightening bond sales, which will begin next week. UK bonds rose after the announcement and the 30-year gilt yield fell 24 basis points to 4.75%. Yield had previously increased from 3.45% earlier last week.

In the perspective of BOE’s being active in the gilt market while raising interest on the one hand and pausing QT on the other hand, there is the plot that we will describe: On the BOE side, the fluctuation of GBP for a few days brought along the expectations of an exchange rate intervention or an interim/aggressive interest rate hike. Even though the exchange rate collapse after the financial plan brought the BOE expectations somewhat in line, the general situation still puts serious pressure on the local currency. Subsidies to limit energy bills mean the UK has to forgo significant tax revenue and increase budget deficits. Due to rising interest rates and inflation, gilt returns will be affected and increase the interest burden of borrowing requirement.

Kaynak: Tera Yatırım-Enver Erkan
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