Gilt yields plunge after Bank of England steps in to buy at ‘whatever scale is necessary’

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

Kwarteng’s proposal for £45 billion of 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 juncture,” the IMF said. “It is important that fiscal policy does not work at cross purposes to monetary policy.”

After additional selling on Wednesday, which took the 30-year gilt yield
TMBMKGB-30Y,
4.570%
above 5% for the first time in decades, the Bank of England stepped in to calm the markets.

“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 statement.

“This repricing has become more significant in the past day – and it is particularly affecting long-dated UK government debt….In line with its financial stability objective, the Bank of England stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses,” it added.

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.”

U.K. stocks
UKX,
-0.51%
rallied on the news but sterling
GBPUSD,
-1.49%
was little changed around $1.0705.

U.S. stock futures
ES00,
-0.36%
also moved off their lowest level of the day.