The Bank of England buys bonds urgently to stabilize the market

　　Author: Chen Xiyu

　　Faced with volatile financial markets, the Bank of England could not sit still.

　　On the evening of the 28th local time (Wednesday), the Bank of England announced that it had purchased 1.025 billion pounds of long-term British government bonds of 20 years and above.

Earlier in the day, the Bank of England issued a statement saying that it will temporarily open the purchase of long-term British government bonds from now on, and will not set an upper limit on the size of the bond purchase, in order to stabilize the financial market and restore market order; the bond purchase plan has a strict time limit and will Complete within the next two weeks.

　　The Bank of England also announced that it will temporarily cancel the auction of government bonds scheduled for next week; it is monitoring the sharp adjustment experienced by British and global assets in recent days, and the recent adjustment has caused a huge impact on British long-term government bonds.

　　After the plan was announced, the British bond market rebounded immediately, and the yields of long-term British government bonds began to fall.

The UK 10-year bond yield, the benchmark for the UK bond market, fell about 43 basis points to 4.072%, while the UK 30-year bond yield fell 100 basis points to 3.993%.

　　The pound also rose, with the pound-to-dollar exchange rate rising more than 30 basis points to 1.0719 in a short-term intraday.

On Wednesday evening local time, the pound further expanded against the dollar, rising more than 120 basis points to 1.0863.

　　UK debt plunge hits markets

　　The Bank of England's emergency intervention in the bond market was driven by concerns over the stability of the entire UK financial market.

　　According to the internal email of a top pension fund in the UK that was exclusively learned by the first financial reporter, the senior executive of the investment department of the fund said to all employees, "I have never seen such a situation in the past 35 years." Prices were still in "free fall" until Wednesday morning UK time, before the Bank of England announced its intervention.

　　"This threatens the UK's financial stability as it forces pension funds to sell assets amid falling market conditions to meet additional Margin requirements."

　　That's exactly what the Bank of England is worried about, according to people familiar with the matter.

The Bank of England's statement on the day also mentioned that "if market turmoil continues or deteriorates, it will pose a significant risk to the UK's financial stability", "will lead to excessive tightening of financing conditions and reduce credit flows to the real economy."

　　Some market analysts believe that if the Bank of England does not intervene, the most likely scenario on Wednesday afternoon, UK time, is that institutional investors, including pension funds, are forced to sell assets quickly in order to be able to make a timely margin call, and the market subsequently falls further. , until a cliff-like collapse occurs.

In fact, major investment banks and major funds have warned the UK government about the issue in recent days.

　　The market bearishness mainly comes from the British government's "Mini Budget" plan announced on Friday, which includes a large number of tax cuts that lack funding sources.

In the next few trading days, the British financial market encountered three killings of stocks, debts and foreign exchange.

Among them, there was a huge shock in the British bond market, the price of government bonds continued to dive, and the yield on the 30-year British government bond was once pushed to a historical high of 5.10%.

　　Is the Bank of England restarting quantitative easing?

　　"In other words, the Bank of England is restarting quantitative easing (QE)," Dales told China Business News, "although this move is for stabilizing financial markets rather than monetary policy considerations."

　　Overall, compared with the UK government's previous tax cut plan that has drawn criticism from all walks of life, the Bank of England's intervention has been affirmed by many parties.

The British Treasury said a few days ago that the Bank of England's intervention in the bond market is necessary to resolve the major market volatility and disorder; in order for the Bank of England's intervention to be implemented smoothly, the bond purchase program has been fully guaranteed by the British Treasury.

　　Former U.S. Treasury Secretary Summers said the Bank of England's purchases of British government bonds were doing "the right thing" given the current market conditions.

But he also pointed out that the Bank of England's actions did not solve those problems in British (Trath government's fiscal) policy.

　　In addition, the Bank of England clarified that the intervention operation is temporary, and its statement pointed out that "once the market risk is judged to have subsided, it will exit (operation) in a smooth and orderly manner".

　　However, Antoine Bouvet, senior rates strategist at ING, believes that if the volatility in the UK bond market continues, the Bank of England may need to extend the bond-buying cycle beyond the original two weeks. In addition, additional rate hikes are not impossible.