Sterling rallies after Bank of England's intervention

Sterling spiked yesterday against dollar away from record lows, marking the best profit in three months after Bank of England's intervention in the UK bonds market, so what did it do and how did the market react?, we explain in this article. 

The Pound

Sterling spiked 1.45% yesterday against dollar, the second profit in a row, and the largest since June 16. 

The pound hit record lows against dollar at 1.0348 on Monday amid concerns about a potential sovereign debt crisis in the UK.

Bank of England 

Bank of England started its emergency bonds purchases program on Wednesday valued at a billion pounds and asserted its commitment to purchase as many long-term golden bonds as needed until October 14. 

Such immediate intervention tanked long-term treasury yields in the UK, and also tanked US 10-year treasury yields, in turn boosting the pound against dollar. 

The BoE also said it's ready to purchase over 20-year traditional bonds in secondary markets with rates that might reach 5 billion pounds initially for each auction. 

The bank embarked on emergency purchases of long-term government bonds this week to rebalance the chaotic markets. 

UK Bonds 

UK 10-year treasury yields tumbled by 10.50% on Wednesday, the heaviest loss since March away from 10-year highs at 4.582%. 

So far UK 10-year treasury yields remain 139 point higher than early September levels, on track for the largest monthly increase on record.