UK Bond Yields Surging Again, Making the Situation Dangerous

GBP/USD has fallen below 1.10 as Bank of England ends bond buying programme as expected

Written by: Skerdian Meta • Wednesday, October 12, 2022 • 2 min read

• Last updated: Wednesday, October 12, 2022

The UK gilt yields surged in August and early September, with the UK 10-year yields reaching 4.60%. That sent markets into panic mode and we saw a dive in the GBP and other risk currencies. The USD surged as the only remaining safe haven asset. All this forced the Bank of England to intervene in the UK bond market. and calm the situation.

The GBP recovered well for some time until a week ago, when the sentiment reversed again after EUR/USD reached parity and now the situation is escalating once again. UK 10s have reached 4.50%, which is a dangerous level, and are still moving higher.

UK 10-YearGilt Yields – Targeting the Highs

The 50 SMA held well during the last pullback

We saw quite a serious crystallization of risk; that remains a live issue
Very important to make clear gilt purchases are a financial stability intervention
Pensions funds have the resources they need, bringing them over is the challenge
LDI has increased its leverage
We have unprecedented volatility in the long end of the gilt market
The BoE “will be out [of the market] by the end of the week”

The grind back for risk assets has quickly come unwound after Bank of England Governor Andrew Bailey said the emergency BOE program to provide liquidity to the long end of the gilt market will end Friday as planned. Many market participants were hoping for an extension at least until the month’s end.

This is a clear sign that the Bank of England is done with its emergency package. UK 30s are almost back to 5% while the UK 10-year gilt yields are at around 4.50%. The cable stumbled back lower to 1.0970s in a quick move as Bailey dashed hopes for an extension, while the USD surged as a safe haven again. Well, markets don’t like central bank ultimatums.

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ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.