The Problems Facing the Gilt Market Aren't Unique to the UK
The turmoil draws attention to the fragility of government bonds around the world when they are not, one way or another, being manipulated by governments and central banks.
The UK bond market is in tatters.
Photographer: Christopher Furlong/Getty Images
The Bank of England recently announced that it would enter the market to buy government bonds (known as gilts) with a remaining maturity of 20 years or more. Although the central bank insists that its actions are “temporary,” to restore “orderly” markets, it’s not really clear what either of those words mean.1 It was only on Sept. 21 that it announced plans to shrink its balance sheet assets by auctioning some of its gilt holdings. It looks like the bank’s follow-up action was to rescue some UK insurance and pension funds, which were facing hundreds of millions of pounds of margin calls as the value of their bond holdings declined – margin calls that some would surely struggle to meet.
That the BOE acted swiftly is to its credit. But the questions about what happened in recent days run deep, are far from relevant only to the UK and are most certainly not over.