The reckless mini-budget, imposed by the Liz Truss government and then withdrawn, has a huge impact on the UK financial economy and its pension funds. The Bank of England announced on Tuesday “a material risk to the UK’s financial stability” by expanding its government bond purchase program.
The move was the result of “a further significant price revision of UK public debt” in a pension-related market, the Bank said. He added that it was the “dysfunction” and the “prospect of a self-reinforcing ‘sell-off’ dynamic” that posed a “material risk to UK financial stability”.
The bank said it would buy up to £ 5 billion of indexed debt, known as the “linker”, together with the previously announced purchase of up to £ 65 billion of conventional long-term government bonds.
That inflation-linked debt triggered a big sale, after the Bank doubled the maximum size of its longer-dated bond repurchases on Monday.
“The start of this week saw a significant appreciation of UK public debt, especially index-linked gilts. The dysfunction in this market and the prospect of a self-reinforcing ‘sell off’ dynamic pose a material risk to the UK’s financial stability, ‘the Bank said.
He added that his latest efforts “would act as additional support for restore orderly market conditions“.
Gilt Market
The market that the Bank is interested in is the gilt trading (bonds). index-linked government bonds with interest payments in line with inflation.
Following the mini-budget presented by the finance minister about two weeks ago, the Bank bought long-term gilts. A type of government bond that constitutes a large part of pensionsto calm the market nervousness about the government’s financial management.
The bank announced on Monday a possible doubling of the amount it was willing to spend on long-term gilts every day.
Tuesday morning announcement extended his speech againby committing to purchase indexed gilts. No one is sure where they are despite the Bank of England’s bond intervention.
Of all the worrying signs, the rise in “economic inactivity” is perhaps the most worrying.
A safe economy?
When the news broke, British Deputy Prime Minister Therese Coffey said people should “be sure” that UK finances are safe.
Yields on gilts, the interest rate payable on government bonds, rose Monday, near a high of 5% on Sept. 27, the day before the Bank made its first intervention.
However, 30- and 10-year bond yields fell 4.4% on Tuesday afternoon, while the five-year yield was lower, at around 4.5%, from yesterday’s 4.6%.
The Bank announced on 28 September a temporary and emergency purchase program of long-term gilts, to be repaid in 20-30 years, following the announcement of the mini-budget by Foreign Minister Kwasi Kwarteng.
The market turmoil resulting from the mini-budget has led to unprecedented preventive action by the regulator part of the pension market will collapseas the cost of interest on gilts increases.
Yields fell upon the Bank’s intervention. The temporary 13-day bond purchase period has yet to end on Friday 14 October.
The decision to re-expand purchases of index-linked gilts “should serve as further support to restore orderly market conditions,” the Bank said. “The Bank continues to closely monitor the evolution of the financial markets,” they explained.
a wrong government
Pat McFadden, Labor’s chief shadow secretary to the Treasury, said: “The fact that the Bank of England was forced to step in for the second consecutive day to reassure the markets shows that the government’s approach is not working. pressure on the Chancellor to reverse his budget ”.
“This is a conservative crisis, made in Downing Street, paid for by the workers. They have lost all credibility and control. They have to respect our nation’s independent institutions, get back to the drawing board and reverse this damaging toll. “
Parliament opens on Wednesday and the Chancellor of Finance has to explain before him.
The Bank of England said it intends to expand the scope of this bond purchase program to include purchases of UK index-linked government bonds, among concerns over another “forced sale”.
Golden performance at 30 years it fell to 4.66 percent from 4.76 percent yesterday. The 10-year gilt yield was 4.45% lower than 4.47%.
The British pound and the stock markets remained under pressure for concerns about rising interest rates and an escalation in the war in Ukraine. The pound fell 0.2% to $ 1.1035 against the dollar. Compared to the euro, it fell by 0.27 percent to 1.1360 euros.
The FTSE 100 fell 0.8 percent, or 55 points, to 6,906.95. The markets of Germany and France are also down. The more UK-focused FTSE 250 fell 0.7 percent, or 114 points, to 17,012.
Holger Schmieding, chief economist at Berenberg, said: “The Bank of England has shown that it is well aware of the volatility of the market and that it can cushion it. So, I hope the interventions work, ”she analyzed.
Paris, correspondent
ap
Source: Clarin
