U.K. gilt yields fall after BoE says it will buy bonds

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U.K. gilt yields fall after BoE says it will buy bonds

U.K. gilt yields fell back from their highest in 14 years after the Bank of EnglandBank of England said it would buy bonds at whatever scale necessary to restore orderly market conditions.

The 10 year benchmark gilt yield TMBMKGB 10 Y, which moves in the opposite direction to prices, fell 46 basis points to 4.07% on the 10 year benchmark.

The yield had gone up to 4.6% on Wednesday, up more than 120 basis points in just four trading days as investors dumped government bonds due to what they denoted as a dangerously profligate budget by new finance minister Kwasi Kwarteng.

Kwarteng's proposal for 45 billion debt-funded tax cuts at a time when inflation was running at a near 40 year high of 9.9% was lambasted by the International Monetary Fund.

Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this time, according to the International Monetary Fund. It is important that fiscal policy does not work at the cross-purposes of monetary policy. The Bank of England stepped in to calm the markets after additional selling on Wednesday, which took the 30 year gilt yield TMBMKGB-30 Y, above 5% for the first time in decades.

The Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets, said the BoE in a starement.

The Bank of England is ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses in the past, because of the fact that this repricing has become more significant in the past day.

The BoE would make temporary and target purchases in the gilt market and will be strictly time limited and unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided, said the BoE.

The UK stock market rallied on the news but sterling GBPUSD was little changed around $1.0705, according to the news.

The U.S. stock futures ES 00 moved off their lowest level of the day.