Bank of England to Stabilize Financial Markets with 'Unlimited Long-Term Government Bond Purchases'

The exterior view of the Bank of England (BOE) located in London, England. Photo by EPA, Yonhap News

[Asia Economy Reporter Kim Heeyoon] The Bank of England (BOE), the central bank of the United Kingdom, is set to undertake emergency government bond purchases to stabilize the financial market.

On the 28th (local time), the BOE announced that it will purchase long-term government bonds as needed until October 14th to ensure financial market stability.

This move is seen as a response to the pound sterling plunging to an all-time low and government bond yields soaring by more than 1 percentage point within two trading days following the UK government's announcement of a large-scale tax cut plan on the 23rd.

The BOE views continued market volatility as a significant risk to the UK's financial stability. Following the interest rate hikes that began last year, it announced a quantitative tightening (QT) plan last week, aimed at reducing liquidity in the market.

The BOE's actions could involve large-scale intervention since the amount of bond purchases has not been specified.

Following the BOE's announcement of market intervention, UK government bond yields declined. On the 27th, the yield on 30-year UK government bonds exceeded 5% for the first time in 20 years since 2002. The 10-year bond yield rose to 4.5%, marking the highest level since the global financial crisis. The 5-year bond yield surpassed those of Italy and Greece, countries that were vulnerable during the early 2010s European debt crisis.

Meanwhile, the BOE has postponed the schedule to start disposing of government bonds purchased after the financial crisis by about a month, moving it from next week to the end of October.

A financial market official analyzed, "Although there is an immediate effect, such as the 10-year bond yield falling by 0.34 percentage points, this is only a short-term measure and does not resolve the problem in the long term."