Bank of England Will Buy UK Government Bonds in Bid to Calm Markets

hank

In a dramatic emergency intervention, the central bank said it would today start buying long-dated government bonds at “whatever scale is necessary” in a bid to “restore orderly market conditions.”

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Seems to have caused the Dollar to fall in the FX markets - perhaps due to speculation the U.S. Federal Reserve may have to become more accommodative in the future. Appears to have stimulated equity buying globally. Slumping precious metals are enjoying a rare “up” day with some miners up more than 4%. Longer dated bonds have turned around and have begun rising in value (rates falling ) - for today anyway. Bank stocks, in particular, are rallying.

WABAC

I don't see it doing anything positive for inflation in England. Might be a big hangover after this feel-good bender.

LewisBraham

The British opted for Thatcher when they need Keynes.

hank

Bloomberg is reporting that England’s central bank has been under pressure in recent days from several defined benefit pension funds that rely heavily on longer dated bonds. Some were becoming insolvent and in danger of collapsing. Points to the kind of repercussions that rapidly rising rates on the short end / falling long term rates can have.

Intertwined in all of this is the highly restrictive stance of the U. S. Federal Reserve which has led to a sharp rise in the dollar on the FX exchanges and (as a consequence) has hammered other currencies around the world.

LewisBraham said:

The British opted for Thatcher when they need Keynes.

Yes - Larry Summers “blasted” UK policy makers Friday (on Bloomberg), likening the country’s fiscal / monetary policies to those of an “emerging market.”

yogibearbull

In reading about central banks recently, I found that the Treasury in the UK contractually indemnifies the BOE on its QE operations, i.e., any profits net of expenses go to Treasury, and any losses will be absorbed by the Treasury. BOE uses Treasury offsets to nullify the QE impact on its balance sheet.

My curiosity was from the recent news that Bank of Australia (BOA) had negative equity due to mark-to-market losses from its QE. But it said not to worry as the government will cover them, so it wasn't bankrupt like a commercial bank would be. That the BOA just has the accounting practice of carrying QE gains/losses on its books and doesn't use offset like BOE.

I don't know what the US Fed does on this. I know that Fed does send profits from its entire operations to the US Treasury. But I am wondering if the mark-to-market values show up on the Fed balance sheet, or like the BOE, it uses Treasury offsets.

LewisBraham

Maybe Truss has no choice but to be Keynes while claiming to be Thatcher: https://newyorker.com/news/our-columnists/the-huge-economic-challenge-facing-liz-truss-new-british-prime-minister

yogibearbull

That is some QE! Twitter LINK

hank

The news broke around 5-6 AM this morning. U.S. markets were down slightly, but quickly turned around. I nearly added to a pm miner in pre-market when it was depressed. But before I could, it began rising.

GDX Mining index has been running +5-6% all day long.

The early bird …

Observant1

U.K. Chancellor Kwasi Kwarteng’s mini-budget was ill-received.
Consequently, the pound sterling fell sharply to a 37-year low against the US dollar.
The Bank of England was concerned the situation threatened the financial health
of Britain's largest insurance companies and pension funds.
Apparently, some pension funds almost ran out of cash after facing margin calls on various derivatives.

yogibearbull

It's OK for now. Twitter LINK