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Bank of England says £65bn gold intervention halted UK financial ‘spiral’

The Bank of England defended the UK government’s intervention in the bond market last week, saying it stepped in to prevent a dump sale of £50bn of gold coins that would push the UK to the brink of a financial crisis.

The central bank said on Thursday it had not launched an emergency bond-buying plan following the prime minister’s remarks Kwasi KwartenA ‘mini’ budget would have forced pension funds to sell £50bn worth of long-term UK government debt ‘short term’. This is well above his average daily trading volume of £12 billion.

of BoE‘s defense of its £65bn plan is the clearest sign of how close the UK is to market collapse following Kwarten’s ‘mini’ budget with £45bn underfunded tax cuts.

Without central bank intervention, they feared a “self-reinforcing spiral” that threatened “severe disruption of core funding markets and consequent widespread financial instability,” said the BoE’s finance ministry. Sir John Cunliffe, Vice Governor for Stability said: Letter to the Chairman of the Finance Committee of Congress.

The letter also detailed warnings received by the BoE prior to the intervention. Managers of debt-driven investment strategies at the heart of the crisis in the UK pension fund industry will be forced to dump large amounts of government debt on Friday, Sept. It is said that he warned that he would not be able to obtain

While the warning lasted through the day and into Monday evening, Tuesday morning’s decline in 30-year gold coin yields offered hope for a “more orderly liquidation of long-term gold coins by LDI fund managers,” Cunliffe said. the letter said.

But once the selling resumes, many LDI investors warn that their funds are likely to fall to their net asset value, leveraging the interest rates they use to manage fluctuations in the value of their long-term debt. I am forced to end my bet. to pensioners. As a result, the banks that lent the money would have sold the gold coins used to back these bets, causing a downward spiral in gold coin prices.

Long-term borrowing costs, which rose for the first time in 20 years, plummeted after the BoE announced its intervention. The overall move in the 30-year Treasury yield was 1.27 points on Sept. 28, larger than the bond’s annual trading range in all but four of the past 27 years, according to the letter.

The BoE has spent just £3.7bn in the first six days of the programme, well below its potential £30bn maximum. Investors and traders in the gold leaf market say the potential for large purchases by the central bank has helped boost the market and give other buyers the confidence to intervene.

However, yields started rising again this week as the BoE did not buy any bonds on Tuesday and Wednesday. Thursday morning’s 30-year borrowing costs traded at his 4.37%, up from a post-BoE intervention low of 3.64%, but a 20-year high above 5% when central banks were forced to act fell below

Cunliffe also responded to concerns that the gold coin-buying intervention, scheduled to end on 14 October, would undermine the BoE’s fight to bring inflation under control by effectively easing monetary policy. These operations were not intended to create permanent central bank money, nor were they designed to limit or control long-term interest rates,” he wrote.

Alongside last week’s purchases of gold coins, the central bank also delayed the start of selling gold coins from its portfolio in a bid to shrink its balance sheet. Cunliffe reiterated that this so-called “quantitative tightening” is scheduled to begin on his October 31st.

https://www.ft.com/content/09c43669-18a9-4476-9a95-044a2448d400 Bank of England says £65bn gold intervention halted UK financial ‘spiral’

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