by Mish Shedlock, Mish Talk:
Today, the Bank of England made a series of statements more likely to cause liquidity problems than solve them, at least in the short term.
You Have Three Days
Yahoo!Finance reports BOE’s Bailey Has a Message for Funds.
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Bank of England Governor Andrew Bailey urged investors to finish winding up positions that they can’t maintain, saying the central bank will halt intervention in the market as planned at the end of this week.
“My message to the funds involved and all the firms is you’ve got three days left now,” Bailey said at an event in Washington on Tuesday. “You’ve got to get this done.”
The Bank earlier on Tuesday expanded the range of its bond-buying program to include inflation-linked debt for the first time to avert what it called a “fire sale” that threatens financial stability. While the central bank has always said its support will end Friday, a lobby group representing UK pension funds had urged Bailey to extend the program at least until the end of the month.
The “essence” of an intervention to support financial stability “is that it is temporary,” Bailey said. “It’s not prolonged.”
Three-Point Synopsis
Market yields on UK “Gilts” surged on the news that Prime Minister Liz Truss’ plan to slash taxes while boosting borrowing. (red arrow 1).
The Bank of England calmed the markets a bit by offering temporary liquidity (red arrow 2).
Then Yesterday, the BOE said it would extend that liquidity to inflation-protected securities called “linkers”
Today, the BOE redefined temporary as get out of Doge in three days. The market had already sensed the move as yields reacted in advance (red arrow 3).
