The Bank of England will step in to prevent bond selloff as the central bank said that it would buy as many long-dated government bonds as needed to stabilize financial markets after a chaos broke out on the recent proposal of the new government’s so-called mini-budget that includes a not-so-mini tax cuts.
The central bank said that the program of buying long-dated government bonds will start from today to October 14, and it would delay the start of a programme to sell down its 838 billion pounds ($891 billion) of government bond holdings, but affirmed that it will surely reduce 80 billion pound over the next 12 months.
Prior to the announcement from the BoE, British 30-year bond yields hit its highest level since 2022 as the central bank stated that it had no choice but to intervene.
The government’s 30-year yields and 10-year yields started to decline after the announcement.
The havoc in the market came after the new government led by finance minister Kwasi Kwarteng announced an unfunded tax cuts that were heavily critized by IMF and Moody’s. IMF said that an untargeted fiscal package would increase inequality, while the rating agency noted that it would draw the British rating to negative territory.