The Bank of England starts buying government bonds to calm the markets

Britain’s central bank, the Bank of England, said it would buy long-maturity government bonds “at any scale necessary” to calm interest rate markets.

Immediately after the announcement of the decision, bond prices started to rise and interest rates to fall. The pound also strengthened for a while, until it turned down again.

The British government announced a stimulus package on Friday, which includes, for example, extensive tax cuts and an energy support package.

Immediately after the announcement of the stimulus package, British government bonds began to be sold diligently, as investors prepare for new bonds to be sold to finance the package. The pound also took a sharp plunge.

The stimulus package is supposed to bring growth, but financing it with debt money while financing costs are rising has caused great concern in the market.

In its announcement, the BoE said that after the announcement of the government’s stimulus package, the prices of various assets have suffered a significant drop, which could significantly weaken the country’s financial system and economy, unless the development is addressed.

Last week, the BoE raised its key interest rate by 0.50 percentage points to 2.25 percent. According to the bank, it reacts as strongly as necessary to inflation, despite the fact that the economy is headed for recession. Inflation is already galloping at breakneck speed in Britain, and the stimulative fiscal policy threatens to accelerate it even more.

The turmoil in the British interest rate market and the pound is not eased by the statement of the International Monetary Fund (IMF), according to which it is closely monitoring the situation in Britain.

The IMF said that with high global inflation, the fund does not recommend large stimulus packages because it is important that fiscal policy does not conflict with monetary policy.

The ten-year interest rate on the British government bond was 26.8 percentage points lower at 4.229 percent. The two-year interest rate was 14.6 percentage points lower at 4.410 percent.

The ten-year interest rate in the USA was at a historically high level

The interest rate on the US ten-year bond was above four percent for the first time in more than a decade. Interest rates, which rise when bond prices fall, have risen with interest rate hikes and expectations of interest rate hikes by the US Federal Reserve.

The Fed, which is fighting high inflation, will have to raise interest rates even more.

“Inflation is much higher in the new reality, so when interest rates are up to four percent, you still have to think about whether it is enough to tame inflation”, assesses Pictet Asset Managementin head of global fixed income Andres Sanchez Balcázar Wall Street Journalille.

Short-term interest rates, which are more sensitive than long-term interest rates to the Fed’s interest rate policy, have also been on a sharp rise.

The interest rate on Italy’s most watched ten-year government bond has risen to almost five percent after Sunday’s parliamentary election. The interest rate difference with Germany is also widening.

The result of the Italian general election is a horror scenario that has been feared in the markets for more than a year. Power is shifting Mario Draghin led by a civil servant government to the extreme right. Fratelli d’Italia, which has a fascist background and is even described as neo-fascist, becomes the largest party in Italy, whose chairman Giorgia Meloni is a likely candidate for the next government official.

At the time of the review, the interest rate on the ten-year German government bond was 4.8 percentage points higher at 2.269 percent. The interest rate on Italy’s ten-year government bond was 9.6 percentage points higher at 4.824 percent

The interest rate on the two-year German government bond was 7.6 percentage points lower at 1.868 percent. The interest rate on Italy’s two-year government bond was 1.9 percentage points lower at 3.243 percent.

The ten-year interest rate on the US government bond was 0.6 percentage points lower at 3.939 percent. The two-year interest rate was 7.6 percentage points lower at 4.207 percent.

At 14:57, the euro fetched 0.956 dollars, 138.41 yen, 0.904 pounds or 10.93 Swedish kronor. The dollar was 144.75 yen and the pound was 1.058 dollars.

By Editor

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