The Bank of England has been forced to apply “plasters on the financial wounds created by the Government” after announcing it was launching an emergency gilt-buying programme in efforts to calm financial markets, experts have said.
The temporary measure to buy Government bonds – known as gilts – to bring down spiralling borrowing costs has been met with a mixed reaction in the City.
The announcement spurred on an immediate fall in UK long-date gilt yields, effectively bringing down the interest rate on public borrowing after it soared earlier this week, analysts said.
But the Bank of England’s move also signals a “topsy-turvy” set of policies with a bond-buying spree counteracting efforts to tame inflation with aggressive interest rate hikes, according to investment platform Hargreaves Lansdown.
Pension funds are natural buyers of long-dated gilts because they provide risk-free guaranteed income decades into the future.
According to Sky News correspondent Ed Conway, the BoE were reportedly responding to a “run dynamic” on pension funds.
Had they not intervened, there ould have been mass insolvencies of pension funds by this afternoon.
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