UK Government Bond Yields Surge Again... BOE Announces Additional Market Stabilization Measures

Bank of England [Photo by Reuters]

[Asia Economy Reporter Park Byung-hee] The UK bond market was shaken again on the 10th (local time) as the yield on 30-year UK government bonds surged nearly 0.3 percentage points in a single day. Despite additional measures announced by the Treasury and the Bank of England (BOE) to stabilize the financial market, the bond sell-off could not be stopped.

According to Bloomberg and other sources, the yield on 30-year government bonds rose 0.29 percentage points from the previous trading day to 4.68%. The yield on 2-year government bonds increased by 0.35 percentage points to 4.42%. The yield on 10-year inflation-linked bonds surged 0.64 percentage points to 1.24%. The increase in the 10-year inflation-linked bond yield was the largest since 1992.

The UK bond market showed renewed instability ahead of the BOE’s planned end to its emergency bond purchases, which had helped stabilize the UK financial market.

On the morning of the same day, the BOE announced additional market stabilization measures. The BOE stated that the emergency bond purchases worth ?65 billion (102 trillion won) would end as scheduled on the 14th, but until then, the daily purchase limit would be increased from ?5 billion to ?10 billion. Additionally, a new short-term funding support program will operate until November 10.

After the UK government announced a ?45 billion tax cut plan on the 23rd of last month, UK bond prices plummeted. Pension funds that operated using bonds as collateral faced liquidity shortages, and as they sold off their bond holdings, bond prices fell further, creating a vicious cycle that risked widespread defaults. Although the market stabilized after the BOE’s emergency intervention on the 28th of last month, concerns resurfaced in the financial market as the end of bond purchases approached.

The Treasury announced that it would advance the release of the government’s medium-term budget and the independent Office for Budget Responsibility’s (OBR) medium-term fiscal outlook, originally scheduled for November 23, by more than three weeks to October 31. The Treasury did not provide a fiscal outlook when it released the mini-budget containing large-scale tax cuts last month.

With the schedule adjustment by the Treasury, the government’s revenue and expenditure plans and the OBR’s evaluation will be released ahead of the BOE’s next monetary policy meeting, which is scheduled for November 3.

This content was produced with the assistance of AI translation services.