The program calls for buying as many long-term bonds as needed between today and October 14, with the aim of stabilizing the markets
London, Thanasis Gavos
A temporary government bond purchase program was announced by Bank of England in emergency action to avert what it describes as a “material risk” to the stability of the UK’s public finances.
The program provides for the purchase of as many long-term bonds as needed starting today until October 14, with the aim of stabilizing the markets.
The move was prompted by a spike in UK government bond yields to a 20-year high (above 5% on the 30-year note), as a result of concern raised by new Finance Minister Kwasi Kwarteng’s mini-budget based on increased government borrowing in the Liz government Tras.
The measures announced on Friday have led to a depreciation of sterling and are expected to lead to a sharp rise in interest rates to control already high inflation.
“If the dysfunction in this market continues or worsens, there would be a material risk to the financial stability of the UK. This would lead to an unnecessary tightening of economic conditions and a reduction in the flow of credit to the real economy,” the central bank’s statement said.
The Bank’s move sent sterling lower against the dollar in the first market reaction.
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