BOE Emergency Measures Announced

The Bank of England yesterday was forced to take emergency action in the UK bond market, announcing £65 billion in purchases to be completed over the next 13 working days. The surprise announcement comes just days after the BOE issued a statement in response to the collapse of the Pound noting that it would not be using an emergency hike ahead of the November MPC, though it would monitor the situation carefully and stood ready to act If needed.

In the statement issued yesterday announcing the move, the BOE referred to the volatility in bond markets, saying: “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy. “

Adding further detail, the BOE noted that “These purchases will be strictly time limited. They are intended to tackle a specific problem in the long-dated government bond market. Auctions will take place from today until 14 October. The purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.”

The initial market reaction saw UK yields dropping sharply with interest on the 10year paper dropping back below 4%. However, the correction has not continued today with yields once again starting to move higher. If yields fail to reverse lower and do indeed resume the uptrend and hit new highs, this might force further action from the BOE.

Technical Views

UK 10Yr Yield

The monthly chart puts things in perspective. Yields hit their highest levels since 2008 yesterday before the BOE stepped in. However, yields are still more than 2000% higher than they were at the lows in 2020. The market is currently stalled at resistance at the 4.101% level. Above here, 5.256% is the next resistance to note. 2.831% sits below market as next key support.