BoE’s New Support Plan Fails As UK Gilt Yields Explode Higher
Update (1030ET): Despite The BoE promises to do almost ‘whatever it takes’, long-dated gilt prices are collapsing today. 30Y gilt yields are up a stunning 34bps now, soaring towards crisis highs…
What next for BoE?
The pain in the UK is spreading to US yields (remember US bond market holiday today but futures trading)…
10Y UST yields are implied around 6bps higher for now.
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Over the weekend, Band of England (BoE) Deputy Governor Dave Ramsden indicated that the bank intends to charge forward on interest rate hikes, suggesting that this is the only way to tame the ongoing inflation crisis.
“However difficult the consequences might be for the economy, the MPC must stay the course and set monetary policy to return inflation to achieve the 2% target sustainably in the medium term, consistent with the remit given to us.”
Just two days after that statement, BoE on Monday announced further measures to ensure financial stability in the U.K., building on its intervention in the long-dated bond market.
Specifically, The BOE said it will:
- Double the size of its auctions to purchase long-dated UK government bonds to £10 billion a day until Oct. 14, when the BOE plans to close that program as previously announced
- Launch a Temporary Expanded Collateral Repo Facility, or TECRF, that will run beyond the end of this week until Nov. 10. Its purpose is to enable banks to ease pressures in LDI funds through liquidity insurance operations.
- Temporary expansion of collateral it accepts under its existing Sterling Monetary Framework to include corporate bonds.
Additionally, regular repo-related operations also remain available to help.
So far, investors haven’t taken up as much of the support as the BOE has offered. In the eight auctions to date, the BOE bought just £4.6 billion of bonds, about 12% of the £40 billion capacity of the program.
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