Bank of England Says "No More Market Intervention"... 30-Year Government Bond Yields Rise for 7th Consecutive Day

President Bailey, Despite Requests to Extend Bond Purchases, Says "This Week's Government Bond Purchases Will End"

Andrew Bailey, Governor of the Bank of England (BOE)
Photo by Reuters Yonhap News

[Asia Economy Reporter Park Byung-hee] Andrew Bailey, Governor of the Bank of England (BOE), the UK central bank, firmly stated that there would be no extension of the government bond purchase deadline, leading to continued turmoil in the UK government bond market on the 11th (local time).

According to major foreign media, Governor Bailey said, "The government bond market seems to have stabilized somewhat," and announced that bond purchases would end this week as planned. Instead, he intervened in the market for the second day by including inflation-linked bonds in the bond purchase targets. The BOE announced that it would double the daily bond purchase limit from ?5 billion to ?10 billion the previous day and operate a new short-term funding scheme until November 10th even after the bond purchase ends.

The BOE announced a ?65 billion bond purchase plan on the 28th of last month. This was five days after the government announced a ?45 billion tax cut plan on the 23rd of last month, which plunged the bond market into severe turmoil. After the tax cut announcement, bond prices plummeted (bond yields rose), causing institutional investors who invested in derivatives using long-term bonds such as pension funds as collateral to face margin calls for additional collateral deposits. To prevent the bankruptcy of these institutional investors, the BOE stepped in to purchase bonds. At that time, the BOE set the bond purchase deadline as October 14th.

After the BOE's bond purchase plan announcement, the UK government bond market seemed to stabilize but showed renewed instability as the purchase deadline approached.

In response, organizations related to institutional investors such as pension funds and life insurance companies requested the BOE to extend the bond purchase deadline until the end of this month to stabilize the bond market. However, Governor Bailey immediately rejected the request, stating there would be no extension.

With the BOE refusing to extend bond purchases, the UK bond market continued to show instability. On the day, the yield on 30-year UK government bonds rose by 0.11 percentage points from the previous trading day to 4.79%. It rose for seven consecutive trading days, approaching 4.99% on September 27th, just before the BOE announced its bond purchase plan. The slowdown in the increase compared to the previous day's 0.29 percentage point rise was somewhat reassuring. The 10-year government bond yield, which had surged by 0.23 percentage points alongside the 30-year yield the previous day, fell by 0.03 percentage points to 4.44%.

The bond market instability also negatively affected the stock market. The UK FTSE 100 index closed at 6,885.23, down 1.06% from the previous trading day. The New York stock market reversed gains during the session but gave back the gains due to the BOE-related negative news at the end. The Dow Jones Industrial Average barely maintained a 0.12% gain, while the S&P 500 and Nasdaq indices fell by 0.65% and 1.10%, respectively.

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