European stocks and government bond prices turned lower on Thursday, after the Bank of England intervened to calm turmoil in gilts trading, sparking a rally that had rippled into other global financial markets.
The Stoxx Europe 600 share gauge fell 1.1 per cent in early dealings, after the regional gauge ended the previous session 0.3 per cent higher. London’s FTSE 100 also slipped 1.1 per cent. Futures contracts tracking Wall Street’s S&P 500 lost 1 per cent, after the broad index closed up 2 per cent to snap a six-day losing streak.
Those moves came after the BoE unveiled a new bond-buying program on Wednesday, saying it would purchase long-dated gilts in light of the recent “significant repricing” of UK government debt and warning of a “material risk to UK financial stability” were “dysfunction” in the market to persist.
The action taken by the central bank triggered a sharp rally in UK assets, with the 30-year gilt yield posting its steepest daily drop on record. The long-dated debt instrument ended Wednesday with a yield of 3.94 per cent after touching a 20-year high of more than 5 per cent earlier in the session. Yields on 10-year UK debt fell to 4.01 per cent from 4.59 per cent. Yields fall as investors buy the bonds, boosting prices.
Following that steep rise in bond prices, gilts and other debt markets came under pressure on Thursday with the 30-year UK yield adding 0.11 percentage points to 4.04 per cent and the two-year yield rising 0.16 percentage points to 4.4 per cent.
That pressure was mirrored elsewhere, with Germany’s 10-year Bund yield rising 0.07 percentage points to 2.2 per cent, and the benchmark 10-year US Treasury yield up 0.14 percentage points to 3.84 per cent after both instruments rallied on Wednesday.
In currencies, the pound lost 1 per cent against the dollar to trade just below $1.08 on Thursday, after gaining in the wake of the BoE’s intervention. An index measuring the greenback against six peers rose 0.5 per cent.
Ahead of the Conservative party’s annual conference this weekend, UK prime minister Liz Truss was scheduled to give a series of brief regional radio interviews on Thursday in which she will be questioned about the gilt market’s negative reaction to the government’s mini-budget last Friday.
The strong gains on Wall Street on Wednesday helped some Asian stock markets to push higher on Thursday with Japan’s Topix rising 0.7 per cent. Hong Kong’s Hang Seng surrendered early gains to move 0.9 per cent lower, while China’s CSI 300 was broadly flat.