MARKETS were rocked yesterday after the Bank of England announced its even higher than expected extension of its quantitative easing.
Stocks soared in afternoon trading, the FTSE closing a whopping 3.7 per cent higher on the day, at 5291.26.
Yields on government debt initially plummeted on the news of the Bank’s extra £75bn of asset purchases. Yields on 10-year notes fell off a cliff, dropping from over 2.35 per cent to under 2.23 per cent in minutes of trading.
Yet gilts slipped and yields recovered in later trading, as a rosier economic outlook saw investors move to riskier asset classes.
Sterling dropped like a stone after the Bank’s announcement, falling from over $1.55 to $1.53, touching its lowest rate against the dollar for over a year. Yet it recovered to end over $1.54.
The Bank of England confirmed that it would start with the first gilt purchases of its new round of quantitative easing next week, buying £1.7bn worth on Monday, Tuesday and Wednesday.
Monday will focus on three to 10 year gilts, Tuesday on those 25 years and longer and Wednesday on 10-25 year gilts. The Bank said it would not buy any of the eight per cent 2021 gilt, the 3.75 per cent 2021 gilt or 4.25 per cent 2039 gilt.