Bank of England Postpones Long-Dated Bond Auction Citing Market Volatility

The Bank of England (BoE) has postponed its planned £600 million auction of long-dated government bonds, originally scheduled for April 14, citing recent market volatility. Instead, the central bank will auction £750 million in medium-term gilts. This decision follows a significant surge in UK 30-year gilt yields, which reached 5.507% on April 9—the highest level since 1998—after U.S. President Donald Trump announced 104% tariffs on Chinese goods.

BoE Deputy Governor Sarah Breeden emphasized that the postponement is a precautionary measure and does not indicate a shift in monetary policy. She stated, "The move should not be read as a signal about the direction of monetary policy or the BoE's broader asset sales." The central bank is currently managing a year-long £100 billion reduction of its £895 billion quantitative easing portfolio, adjusting sales to avoid market disruption.

The recent market turbulence mirrors the October 2022 bond market turmoil following former Prime Minister Liz Truss's "mini-budget," which led to a sharp sell-off in government bonds. The current situation underscores the interconnectedness of global financial markets and the sensitivity of UK bond yields to international developments.

The BoE's Financial Policy Committee (FPC) has expressed concerns about the UK's exposure to global risks stemming from U.S. trade policies. The FPC highlighted increased probabilities and potential severity of adverse economic events due to disruptions in global trade, which could weaken the financial system and heighten financial market volatility. Despite these challenges, the FPC expressed confidence in the resilience of UK banks to support households and businesses, maintaining the countercyclical capital buffer at 2%.

Finance Minister Rachel Reeves rejected the idea of suspending fiscal rules despite limited flexibility in future budgets, noting that sustained high yields could threaten the UK's fiscal targets and economic stability. Analysts have warned that rising public debt levels and associated risks of sharp increases in government bond yields, especially if accompanied by capital outflows, could pose significant challenges to the UK's economic stability.

The BoE's decision to postpone the long-dated gilt auction reflects its commitment to maintaining market stability amid global financial uncertainties. By adjusting its asset sales strategy, the central bank aims to manage its quantitative easing portfolio reduction while minimizing potential disruptions in the financial markets.