We've seen the Bank of England intervene in the UK Gilt market to purchase long dated bonds in an effort to calm market volatility in UK bonds. The Bank said that purchases will be made in whatever scale is necessary to achieve the desired outcome. The Bank also said that MPC will not hesitate to change interest rates by as much as needed to bring inflation back to 2%. As a result, we saw an immediate fall in long dated UK gilt yields with the 10 yr and 30 yr bond yields falling by around 0.4% in a matter of minutes while equity market indices as well as GBP jumped as USD weakened against major G10 currencies.
This is a significant step by the Bank of England. The UK central bank first tried words, which failed. Now it tries to intervene in bond markets to bring yields back under control. On the one hand, this might bring some reassurance to the market that the BoE is ready to act outside of its scheduled meetings. This means it's now much more likely we will see major interest rate hikes before the next MPC meeting in November. Yet on the other hand, the Bank of England is applying plasters on the financial wounds created by the Truss government who have shown no hint at reversing policy. So until that happens, the question remains how much further will the BoE be forced to intervene and over what time period? Time will tell.
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