Investing.com— In Asian trade on Wednesday, the British pound went up again after a report said that the Bank of England told bankers that it might keep buying bonds past Friday if the market needed it.
The pound went up 0.3% to 1.0991, making up for its losses from the previous day. It briefly traded above 1.1.
The Financial Times said that sources close to the situation said that the central bank privately told bankers that it could keep its emergency bond-buying programme going past Friday.
The report is different from the deadline that Governor Andrew Bailey set for October 14. On Tuesday, he told pension funds that they only have three days to fix their problems.
On Tuesday, after Bailey’s warning, the pound fell to a level that hadn’t been seen in almost two weeks. Markets were afraid that removing debt support would add to the stress on fund managers, who were already reeling from a big sell-off of gilts.
At the end of Tuesday, the yields on 10-year UK bonds went up 0.8% to 4.4750.
The FT said that BOE officials are keeping an eye on whether the investment managers who help pension funds manage the risks in their portfolios have saved up enough cash so that their clients can meet margin calls. If the bank sees that fund managers can’t meet this requirement, it will help them.
Concerns about new tax cuts announced by Finance Minister Kwasi Kwarteng, who just got the job, sparked the UK’s growing debt crisis. Investors didn’t think the government had enough money to pay for those tax cuts, since the COVID-19 pandemic had already caused inflation to rise and spending to get tight.
Last month, when people heard about the proposed tax cuts, the pound fell to an all-time low and a lot of gilts were sold, which caused yields to reach all-time highs. Because of this, the BoE had to step in with a 65 billion-pound programme to help keep bond prices up. The move was also different from the bank’s recent efforts to control inflation by tightening money.
Now, the markets are waiting for GDP data from the UK later in the day to get more information about the health of the country’s economy.