The fact the Bank of England has widened its support measures for the market by including index-linked gilts in its programme of government bond purchases will only serve to worry investors even more.
So far, its support measures haven’t kept a lid on gilt yields as they have continued to creep up in recent sessions, thereby increasing the cost of borrowing for the government. And today’s news only triggers a very small retreat in yields.
Russ Mould, investment director at AJ Bell, said: “The Bank of England hopes to avoid a crisis in the market by being a willing buyer of bonds from pension funds who are under pressure. These pension funds will welcome today’s move, but whether the broader market shares the same enthusiasm remains to be seen.
“The key sticking point is that the support measures are only scheduled to last until Friday. Will that be long enough, or will the Bank of England extend the support scheme? Extending it could go one of two ways – the market either applauds the move and breathes a sigh of relief or it gets even more worried, thinking that the extra time suggests the crisis is more severe than originally thought.
“It’s another red day for markets. There are few reasons for investors to regain optimism at present, as we continue to see stocks slide amid a backdrop of doom and gloom. The FTSE 100 fell 0.5% to 6,922, dragged down by insurers and pension fund operators, miners, retailers and banks.”