Market: The end of the Bank of England’s support is looming, British rates are exploding


(BFM Bourse) – British government borrowing rates are rising sharply again, so the Bank of England confirmed that it was ceasing its Treasury securities buyback program on Friday 14 October. The yield on the British 30-year is evolving around 5%.

The British debt market was once again seized with a fit of fever after contradictory signals which seem to have been given by the Bank of England, and government borrowing rates soared to levels not seen for two decades.

The yield on Britain’s 10-year Treasury bills hit a new high since 2008 on Wednesday, amid a fit of fever in the UK debt market over a massive and unfunded London budget plan announced at the end of September. The yield on 10-year Treasury bills from the British State moved to 4.60% around 3:50 p.m., after having reached 4.64% earlier.

30-year rates at their highest since 1998

The yield on 30-year British government Treasury bonds, whose soaring to 5.14% had provoked action by the Bank of England at the end of September, were again hovering around the 5% threshold on Wednesday, after confirmation that the intervention will end on Friday. The rate moved to 5.01% Wednesday around 4:00 p.m. after rising a little earlier to 5.14%, approaching a peak since 1998.

Long-term UK government borrowing rates have soared since the end of September and a massive and unfunded London budget plan, raising fears among investors of a UK public finance exit.

In an attempt to calm the markets and counter a “significant risk to the financial stability of the United Kingdom”, the monetary institution had to intervene from September 28 by buying long-term Treasury bonds. It extended its intervention on Monday and Tuesday in the face of the “dysfunctions” which continue, without pushing back the date of the end of the intervention.

Debt purchases that will end on Friday

According to FinancialTimes, which quoted unnamed sources familiar with the matter on Wednesday, said the central bank “privately indicated to bankers that it may extend its emergency bond-buying program beyond Friday’s deadline” if market conditions require it. But “as the (central) bank has made clear from the outset, its temporary and targeted purchases of Treasury bills will end on October 14,” she said in a statement.

On the other hand, a number of measures, including a temporary guarantee facility on collateral intended to help banks ease pressures on liquidity will remain in place “beyond October 14”, the central bank said.

In a statement on Tuesday, the British Association of Pension Funds (PLSA) urged the BoE to give them more time. ‘The period of ‘Central Bank’ bond purchases ‘shouldn’t end so quickly… many believe it should extend to October 31 or even later’, instead of Friday , argues the association.

(With AFP)

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