Bank of England to Buy Bonds in Bid to Stop Spread of Crisis

[mahatmakanejeeves]

Source: The Wall Street Journal.

WORLD * EUROPE * U.K.

Bank of England to Buy Bonds in Bid to Stop Spread of Crisis

U.K. central bank is launching an effort to restore order to the market for gilts

By Paul Hannon
https://twitter.com/PaulHannon29
[e-mail]
Updated Sept. 28, 2022 7:17 am ET

LONDON—The Bank of England on Wednesday said it would buy U.K. government bonds with long maturities “on whatever scale is necessary” in an effort to restore order to the market after a large set of government tax cuts sent borrowing costs soaring.

The move caused an immediate reaction, with bond prices both in the U.K. and other markets rallying, sending yields lower. The U.K.’s benchmark 10-year government bond yields fell to 4.004% after the announcement, from 4.552% before, an outsize move for what is normally a staid corner of the market. The pound rallied at first against the dollar but then slid further to trade down around 0.6% to $1.066.

{snip}

Read more: https://www.wsj.com/articles/bank-of-england-to-buy-bonds-to-stop-crisis-spread-11664360313

[Ray Bruns]

1. Tax cuts can cure anything. Recession. Depression. Bear markets. Covid. Toe nail fungus.

Cold sores.

[Alexander Of Assyria]

2. If you are Rich and now even more rich, then yes to all the above!

Fortunately Brit voters will soon have a chance to boot the nut job cons privately elected PM.

[mathematic]

7. Tax cuts are an appropriate Keynesian response to all those things, except the fungus

Tax cuts are not an appropriate response to inflation. So when the new PM announced tax cuts everybody threw in the towel on the pound and UK gov bonds, which precipitated this crisis.

[not fooled]

17. But the rich beneficiaries of the tax cuts will just hide the money

in offshore accounts, so how is that inflationary?

[Itchinjim]

3. Entirely self-inflicted.

Xenophobic dipshits.

[turbinetree]

4. Margaret Thatcher 6.0 .......there they go again... trickle down BS......

fucking Tories......

[peppertree]

11. The lady's not for turning!

Except, of course, the pound printing machine - which must be turned “on whatever scale is necessary” to pay for her mess (and her successors').

[turbinetree]

14. Tories.....

[muriel_volestrangler]

5. Seems the Tories took the economy to the brink of a crash

And bond-buying by a central bank is inflationary - at a time when inflation is already at a multidecade high.

Link to tweet

On the @bankofengland intervention:
Am told the BoE were responding to a “run dynamic” on pension funds - a wholesale equivalent of the run which destroyed Northern Rock.
Had they not intervened, there would have been mass insolvencies of pension funds by THIS AFTERNOON.

This is by far the worst unforced economic policy error of my lifetime

The scale of the destruction it is bringing is hard to comprehend:
- higher import prices
- surging mortgage bills
- higher deficits risking big spending cuts to come
- pension funds taking big losses on forced asset sales
- likely lasting risk premiums for UK firms and govt

Link to tweet

This is increasingly looking politically unsustainable.

One Tory MP tells me: “It’s extinction level stuff. This is like 2008 but worse. We’re messing with the very fundamental principle of providing a home for your family. That’s why it’s different: it’s real stuff”.

Link to tweet

[turbinetree]

15. And what really classic she gets paid to to do this stuff....with help from her Tories....

[PSPS]

6. Sounds like saint ronnie's PPT that turned our economy into the charade it is.

[chowder66]

8. I misread "restore order to the market for gilts" as "restore order to the market for gits" lol.

[TheBlackAdder]

9. Kupkake-Inator can do tax cuts from anything.

.

.

[peppertree]

10. +1

Countries with hard currencies can give themselves that luxury - the same one they chastise other countries for even trying.

Up to what point though, remains to be seen.

[mahatmakanejeeves]

12. UPDATE 5-Bank of England to buy 65 billion pounds of UK bonds to stem rout

Reuters

UPDATE 5-Bank of England to buy 65 billion pounds of UK bonds to stem rout

David Milliken
Wed, September 28, 2022 at 3:09 AM

* Bank of England steps in to buy long-dated bonds

* 30-year yields tumble by 100 bps after BoE support

* BoE to buy up to 5 bln pounds of gilts a day until Oct. 14

* Gilt sales due to start next week postponed

* BoE still aims to reduce QE holdings by 80 bln stg

(Updates with result of first buy-back, details of plan)

By David Milliken

LONDON, Sept 28 (Reuters) - The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.

Citing potential risks to the stability of the financial system, the BoE also delayed on Wednesday the start of a programme to sell down its 838 billion pounds ($891 billion) of government bond holdings, which had been due to begin next week.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy." ... The central bank said it was still committed to an 80 billion-pound cut over the next 12 months in its holdings of bonds bought after the global financial crisis of 2007-08 and during the COVID-19 pandemic.

British 30-year bond yields had hit their highest since 2002 earlier on Wednesday and traders said it was becoming increasingly hard to buy and sell bonds as no one wanted the risk of holding such a volatile asset.

{snip}

[Farmer-Rick]

13. Boy what a mess Ms. Truss and her conservative party have created

Wow, she really stepped in it.

Where did she go wrong?

[roamer65]

16. More pounds in circulation.

It equals devaluation.