Bank of England intervenes in bond market after massive sell-off

Andrew Bailey, governor of the Bank of England, has said the global economic outlook has deteriorated materially after surging commodity prices pushed up inflation around the world.

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LONDON — The Bank of England will suspend the planned start of its gilt selling next week and begin temporarily buying long-dated bonds in order to calm the market chaos unleashed by the new government’s so-called “mini-budget.”

U.K. gilt yields were on course for their sharpest monthly rise since at least 1957 as investors fled British fixed income markets following the new fiscal policy announcements. The measures included large swathes of unfunded tax cuts that have drawn global criticism, including from the IMF.

In a statement Wednesday, the central bank said it was monitoring the “significant repricing” of U.K. and global assets in recent days, which has hit long-dated U.K. government debt particularly hard.

“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” the Bank of England said.

“In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for U.K. households and businesses.”

As of Wednesday, the Bank will begin temporary purchases of long-dated U.K. government bonds in order to “restore orderly market conditions,” and said these will be carried out “on whatever scale necessary” to soothe markets. The purchases will be fully indemnified by the U.K. Treasury, the Bank revealed.

The Bank’s Financial Policy Committee on Wednesday acknowledged that the dysfunction in the gilt market posed a material risk to the country’s financial stability, and opted to take immediate action.

The Monetary Policy Committee’s target of an annual £80 billion reduction of its gilt holdings remains unchanged, the Bank said, with the first gilt sales — initially slated for Monday — now taking place on Oct. 31.

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