Key Takeaways:
- Bank of England buys out £65 billion worth of bonds to avoid market crash
- The decision received mixed reactions.
- Some crypto analysts believe the massive QE repeats a 2009 scenario.
YEREVAN (CoinChapter.com) – On Sep. 28, the Bank of England stepped into Britain’s bond market and plans to buy out £65 billion (approximately $70 billion) in long-dated gilts, a type of government bond that makes up a large proportion of pension pots.
Bank of England wants to avoid bond market crash
The decision to crutch up the economy came after the largest selloff in decades, in the wake of the tax cut announcement last week.
Sources reported a subsequent surge in long-dated UK government bond prices after the quantitative easing (QE) announcement. As a result, 30-year yields plunged more than a full percentage point, their biggest recorded one-day drop since 1992.
Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.
read the statement from the Bank officials.
The Bank of England put no limit on the size of its intervention. However, the institution initially planned to hold daily auctions to buy up to 5 billion pounds of gilts with a maturity of at least 20 years between Sep. 28 and Oct. 14.
Decision gets mixed reactions
Bethany Payne, global bond portfolio manager at Janus Henderson Investors, asserted that the decision risks a “potential hazardous misstep,” and the likelihood of the market “misunderstanding this policy change” is high.
Stanley Druckenmiller, a hedge fund manager and the president of Duquesne Capital, disagreed with Central Bank’s decision. “We’ve had 30 trillion of QE globally over the last ten years,” said the expert, adding that “free money” creates “bad behavior.”
So you’re the Bank of England, and you’ve got this situation on your hands now, which is quite serious. What do you do? Well, what you don’t do is go and take taxpayer money and buy bonds at 4 percent when your inflation rate is over 10. You don’t cure inflation with an inflationary act.
said Druckenmiller, in an interview with CNBC.
What about the crypto market?
While the connection is not evident, some digital asset holders believe the crypto market might benefit from the unstable economic situation around the world. As CoinChapter previously reported, 2022 brought crypto larger adoption, but at a costly price of a correlation with risk-on assets.
However, the initial idea of creating a “people’s currency” drove the allusive Satoshi to create Bitcoin in the first place. Some analysts believe that the Bank of England’s recent QE might push potential investors and traders toward the crypto market, just like in 2009.
Bank of England not fond of Bitcoin
In 2009, the Times printed a headline, now famous among crypto enthusiasts: “Chancellor on the brink of second bailout for banks.” The headline was then encoded in the Bitcoin genesis block and became a symbol of resistance against main-grain finance.
In turn, the Bank of England warned its investors in 2021 that Bitcoin could become “worthless.”
The problem is that, unlike traditional forms of money, Bitcoin isn’t used to price things other than itself. As Bitcoiners themselves are fond of saying, ‘one Bitcoin = one Bitcoin’. But a tautology does not a currency make.
the issued statement read.
As of Sep 29, while the Sterling attempted to stabilize itself after a record plunge, the crypto market found some balance at around $900 billion.
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