The Bank of England began a move into Britain's bond market on Wednesday to stem market turmoil and pledged to buy 65 billion pounds ($69.4 billion) of long-dated gold after the government's fiscal statement triggered the biggest sell-off in decades.
Emphasizing potential risks to UK financial stability, the BoE also said it would delay the start of a program to sell 838 billion pounds ($891 billion) of its government bond holdings, which was due to start next week.
The BoE said, "If the dysfunction in these markets continues or worsens, there will be a material risk to UK financial stability." "This will lead to an undue tightening of financing conditions and a reduction in the flow of credit to the real economy."
The BoE said it remained committed to an 80 billion pound reduction over the next 12 months in its holdings of bonds bought under its quantitative easing program after the 2007-08 global financial crisis and during the COVID-19 pandemic.
British 30-year bond yields hit their highest level since 2002 on Wednesday, ahead of the BoE's announcement, and investors complained it was getting harder to buy and sell bonds because no one wanted the risk of holding the volatile asset.
After the BoE announcement, long-dated gold yields plunged. The central bank did not put a limit on the size of its intervention but said it would begin planning to hold daily auctions to buy up to 5 billion pounds of gilts with maturities of at least 20 years, between Wednesday and until October 14.
The BoE last intervened in the gilt market to stem market turmoil in March 2020, when the Covid-19 outbreak impacted the market, expanding the then-dormant quantitative easing program by hundreds of billions of pounds.
However, the BoE said on Wednesday that this latest intervention would be temporary.
