Bank of England to Buy Bonds to Restore ‘Orderly’ Markets

The Bank of England said on Wednesday that it would temporarily buy British government bonds after the new government's fiscal plans roiled markets.

The central bank said that bonds with long maturities have been affected. There would be a material risk to U.K. financial stability if the market continued or worsened.

The central bank stated that the purpose of the purchases was to restore orderly market conditions. The purchases will be carried out on a large scale.

The yield on 10-year British government bonds rose to 4.58 percent before the central bank issued a statement. Thirty-year yields had gone over 5 percent for the first time in a decade.

After the announcement, the yield on the bond dropped sharply. The yield on the 30-year bond fell.

The mortgage market in Britain was disrupted because of the rapid rise in bond yields.

The Bank of England had announced a plan to sell bonds back to the market as it tried to end the era of easy money. On Friday, investors fled from British assets after the government announced a plan to cut taxes and increase government borrowing. When the pound fell to a record low against the U.S. dollar, traders thought the central bank would have to raise rates quickly.

The central bank and Treasury put out statements to calm the markets after the pound and bond yields fell. Bond yields continued to rise.

Huw Pill, the chief economist of the Bank of England, said on Tuesday that the government's fiscal plans would be met with a " significant" response from the Bank of England.