- After a FT report, the Bank of England stated that it might extend its emergency bond purchasing. The pound is now on the rise.
- After the BoE chief advised pension funds that they had only three days to deal with their investments, the UK currency plummeted.
- The bond buying will calm markets scared by fears of a UK economic crisis and a hit on pension funds.
The British poundThe dollar fell sharply Wednesday, prompting a Bank of England warning about the need to act in the bond market. It had only three days before it would cease its support.
After a monetary crisis, the currency recovered. Report in the Financial TimesThe UK central banking signaled that they were considering a change of heart, suggesting it could extend its emergency bond buying program beyond Friday.
Sterling traded at $1.1015 up 0.43% after the report dispelled investors’ fears that the BoE was retreating from its efforts to calm volatile bond market. Two weeks ago, it launched its program following a huge sovereign debt sale that was triggered by concerns that a financial crises could cause damage to pension fund investments.
On Wednesday, Financial Times reported that the Bank of England had privately indicated to several bankers it was willing to extend its bond buying beyond the deadline.
It will monitor pension funds closely to determine if their investment managers have been able to withstand margin calls. Then, it will decide on Thursday or Friday whether to establish a new endpoint, according to the FT.
The pound fell Tuesday to $1.0954 against the dollar. It was a two week low. It is necessary to extend it.
“We have said that we will be out by this week’s end,” he stated. According to Reuters, he stated Tuesday at an Institute of International Finance event that rebalancing is necessary.
“My message to all funds and firms managing those funds is: You have three days left. This must be done.
The FT didn’t mention whether the BoE’s private proposal to extend the deadline was made before or after Bailey comments. An Insider request for comment was not immediately answered by the BoE.
Analysts believe that Bailey’s decision to give pension funds days to resolve their liquidity position had caused market jitters.
“A Central Bank has just caused a market to fail, even though it was the primary cause!” Crossborder Capital made the following statement in a Tweet.
The BoE was In late September, the government was forced to intervene with a £65 billion ($71.5 billion) program of buying long-dated UK government bonds, or gilts. After the announcement by the UK government of massive tax cuts, turmoil erupted in bond and currency markets as investors worried about the impact on their debt burden.
The central bank took over. Stepped in twiceIt decided to expand the program Monday and Tuesday, as it showed no sign of settling the market for gilts. It warned that rising gilt yields could lead to a spiral of “fire sales” that could endanger the UK’s financial stability.
