Bank of England may have to extend buying long-dated government bonds

The Bank of England, on Wednesday, said it will start buying (temporarily) long-dated government bonds to “restore” orderly market conditions.

Strategist Antoine Bouvet reacts to the news on CNBC

Originally, the central bank was slated to begin selling “gilts” on the coming Monday.

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The announcement comes on the heels of a “mini-budget” from the new government that included volume of tax cuts last seen in the United Kingdom in 1972.

Consequently, the FTSE 100 lost about 6.0% over the past three weeks. Reacting to the economic news on CNBC’s “Street Signs Europe”, ING strategist Antoine Bouvet said:

This is a step in the right direction. There’s nothing worse in terms of financial consequences than if the treasury loses market access and aren’t able to finance themselves. That’s the crisis the Bank of England is trying to solve now.

The blue-chip FTSE 100 index has lost roughly 6.0% over the past three weeks.

Quantitative tightening to begin by the end of October

The Bank of England has committed to buying £65 billion worth of government bonds through October 14^th.

By the end of the month, though, it sees a return to “selling” in line with its previously disclosed plan of cutting gilt holdings by £80 billion over the next twelve months. But Bouvet noted:

If we continue to see a lot of volatility in gilt, the Bank of England might have to extend these purchases.

Yield on the 30-year bond, early this morning, climbed to a record since 2002. Following the announcement, however, it dropped a full-percentage point – biggest one-day decline in thirty years.

GBP also recovered some of its strength against the U.S. dollar later on Wednesday.