Central Banks
BOE Response Highlights ‘Impossible Trinity’ of Liquidity Issues
- Central bank pledged to buy bonds to stave off crash in gilts
- BofA’s Cabana says illiquidity exacerbated by lack of backstop
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The Bank of England’s pledge of unlimited long-dated bond purchases is a signal UK policy makers are attuned to what Bank of America has called the “impossible trinity” of structural problems plaguing global interest-rate markets.
Mark Cabana, head of US interest rates strategy at Bank of America Corp, said last week there’s a series of underlying issues impacting markets, from high debt loads to restrictive regulation and the absence of central bank intervention. It’s these dilemmas that ultimately forced the BOE to announce its plan to buy bonds, which had an immediate impact on the gilt market, putting yields on 30-year debt on track for the biggest drop on record on Wednesday.