10-year gilt yields have tumbled significantly since the announcement, down 40 bps on the day now to 4.10%:
The BOE has backed down from QT and then some in their latest announcement, offering to buy government bonds "temporarily" in order to try restore order and function in the gilt market. And so now, we have rate hikes and QE (well, sort of) at the same time with the UK now joining Europe and the ECB.
In any case, the takeaway from the past week is essentially policy incoherence from the UK and this just adds to that. Sure, there were signs of dislocation and dysfunction with the gilt market and the BOE action today will help with that. However, is it really a be-all, end-all solution?
I want to say that I'm on the fence but in all honesty, I'm leaning towards a hard no.
I mean, when a central bank has to step in with major intervention in the bond market as a result of government policy and not some of external shock, something is deeply rotten at the core. That of sort of dynamic in itself is dysfunctional.
This is essentially a band aid solution in trying to restore confidence in the gilt market but unless it is accompanied by some change or backing down on the fiscal side, it is hard to see this as being a turning point for UK assets.
If Kwarteng is going to keep doing Kwarteng things and the BOE has to come out to put out the fire in every instance, it's not exactly a picturesque graphic of the UK economy - especially when you have to consider that the central bank has to run against its own policy resolve in trying to fight high inflation pressures.