Borrowing costs plummet as Bank of England calms gold market

Borrowing costs plummet as Bank of England calms gilt market with pledge to buy long-term bonds ‘on whatever scale is necessary’

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Sterling soared and borrowing costs plummeted after successful intervention by the Bank of England to calm feverish gold markets.

The central bank said it would buy long-term bonds “on whatever scale is necessary” to “restore orderly market conditions” after days of turmoil following last week’s mini-budget tax cut.

“If the dysfunction in this market were to continue or worsen, there would be a material risk to the financial stability of the UK,” he said, as fears of a collapse in the pension industry grew as bond yields rose. wreaked havoc on funding models.

Bond Commitment: The Bank of England, led by Governor Andrew Bailey (pictured), has put plans on hold to start unwinding its £895bn quantitative easing money issue.

Bond Commitment: The Bank of England, led by Governor Andrew Bailey (pictured), has put plans on hold to start unwinding its £895bn quantitative easing money issue.

The Bank, led by Governor Andrew Bailey (pictured), has put on hold plans to start unwinding its £895bn quantitative easing (QE) money issue.

He was scheduled to start selling the gilts he bought through QE next week, but the first sale will be on October 31.

The move surprised financial markets and yields on 30-year government bonds, which had risen above 5% for the first time in 20 years, fell below 4% in the steepest drop on record in a single year. day.

Yields on one-, five- and ten-year gilts also fell, easing borrowing costs for government, corporates and households, though all remain well above levels a month and a year ago.

Sterling also recovered. Having fallen to an all-time low against the dollar of around $1.03 earlier in the week, the pound rose above $1.09.

Daniela Russell, head of UK rates strategy at HSBC, said the intervention was “the security the market has been waiting for”.

He added: “The announcement to suspend its program to sell gilts and buy long-term bonds is a huge relief.”

Markets have been in turmoil for months with government borrowing costs rising and currencies around the world falling against a runaway dollar amid fears runaway inflation will force central banks to raise rates. interest rates to the point that the world economy falls into a recession.

Answer: The 30-year gilt rate of return, which had risen above 5% for the first time in 20 years, fell back below 4% in the steepest single-day drop on record

Answer: The 30-year gilt rate of return, which had risen above 5% for the first time in 20 years, fell back below 4% in the steepest single-day drop on record

Answer: The 30-year gilt rate of return, which had risen above 5% for the first time in 20 years, fell back below 4% in the steepest single-day drop on record

Stock markets have also been affected, although London’s FTSE 100 has fared better than many.

The scale and speed of the British asset sell-off caused further stress in global markets, with the euro and Chinese renminbi hitting new lows against the dollar.

“It’s like having a sand castle where the pieces start to fall together,” said Olivier Marciot of asset manager Unigestion. “I think the UK is one of those pieces. It just increases the pain, it increases the stress.’

The euro rallied as did the pound after the Bank’s intervention, while stock markets halted their slide.

In London, the FTSE 100 rose 0.3 percent while the FTSE 250 rose 0.1 percent. Among the big gainers were commercial property stocks that have taken a hit in recent sessions amid fears that rising interest rates would hit the value of office blocks, malls and warehouses.

Land Securities gained 6.9%, British Land 5.7% and Segro 6%. But life insurance and pension companies were affected. M&G fell 6.2 percent, L&G 5.6 percent and Aviva 4.9 percent. Analysts warned of increased volatility in the coming days and weeks.

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