Bank of England’s Next Move
Some of the most significant market-moving news yesterday came from the Bank of England, which promised to buy bonds in a bid to calm markets. The announcement came shortly after bond yields reached record highs, with U.K.’s own gilt yields experiencing their sharpest monthly rise since 1957. On the American front, the 10-year Treasury note had peeked above 4% for the first time since 2008. Globally, the yields on government bonds have been climbing alongside the central banks’ attempts to ameliorate levels of inflation not seen in decades.
To “restore orderly market conditions,” the Bank of England released its plan to start buying long-dated bonds “on whatever scale necessary.” While buying this government debt, the BOE believes it can increase the money supply in the economy, hoping to soothe the market amidst the drastic increases in interest rates. Through an economic strategy known as quantitative easing, a central bank will buy longer-dated bonds to push higher yields down, stimulating more people and corporations to borrow money and increase economic activity. With economic conditions worsening, it is an interesting, and potentially positive, play by the BOE to help mitigate the triggering of a prolonged recession.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.