BoE Fails To Reassure Over Emergency Intervention

The Bank of England on Wednesday insisted it would end emergency buying of UK bonds by the weekend but sent markets into further frenzy as economic uncertainty grips Britain.

The BoE launched a bond-buying drive in late September aimed at quelling market turmoil triggered by an uncosted budget unveiled by the government of new Prime Minister Liz Truss.

Following a Financial Times report on Wednesday that the BoE could extend its buying of UK government debt, the central bank insisted it would end purchases of long-dated bonds on Friday.

Amid all the uncertainty, the yield on Britain's 30-year bond, or gilt, rose back above five percent close to a 24-year peak. The yield on the 10-year gilt reached 4.64 percent, the highest level since the 2008 global financial crisis.

The BoE on Wednesday insisted that "its temporary and targeted purchases of gilts will end on 14 October."

It also confirmed, however, that measures to boost liquidity would remain in place beyond Friday.

The bank has jumped into bond markets to protect financial stability after yields rocketed and the pound tumbled to a record dollar-low following Britain's tax-slashing budget.

In particular, the BoE feared for British pension funds that invest in traditionally low-volatility state bonds.

Speaking on the sidelines of an International Monetary Fund gathering in Washington on Tuesday, BoE governor Andrew Bailey confirmed that pension fund managers had "three days left" until the bank's bond purchases ended.

"We think the BoE has put itself in a no-win situation," said Matthew Ryan, head of market strategy at financial services firm Ebury.

"Either Bailey is forced to backtrack on his pledge and extend intervention beyond Friday, potentially damaging the bank's credibility, or end the measures as planned and risk another blowout in gilt yields."

Separately, the BoE on Wednesday judged that Britain's banks were "substantially more resilient" than before the 2008 crisis thanks to strong capital and liquidity. (AFP)