Yesterday saw intervention from the Bank of England as gilt markets (UK government debt) began to seize up with a lack of buyers. This market dysfunction impacted UK pension funds which were forced to sell more gilts for cash requirements due to the price deterioration since the mini-budget last week. Had the Bank not intervened yesterday then we could have been in a position where pensions funds potentially did not have the necessary cash to meet collateral requirements.
The Bank of England announced in the morning that they would inject up to £65 billion into the gilt market to stabilise prices and allow orderly market conditions. They confirmed they would buy up to £5 billion of gilts each day for up to 13 days. This intervention was as important in its message as its function. The BoE is confirming through action that they are closely monitoring the situation and will do what is necessary to maintain as much stability as possible.
The pound initially rallied after the news but immediately sold off again, pushing towards recent lows against both the US dollar and euro. As US participants arrived at their desks, the pound began to find support and some new bids. It rose back to $1.09 against the greenback in late trade but has given some ground back in the Asian session. Watch this space…!
Written by Viv Savani. 8:28am, September 29th 2022Share
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