The Bank of England is snapping up bonds to stabilize debt markets — but that goes against its aim of stemming inflation. Here's what you want to know.

A spike in yields for long-term UK government bonds pushed the Bank of England to intervene in debt markets.

Friday eve means the weekend's just around the corner, but it seems like nobody told the British bond market. I'm your host, Phil Rosen, and boy do we have action to sort through today. 

Here's the TLDR of today's newsletter: The Bank of England is in a pickle because it's trying to ease and tighten its monetary policy at the same time. 

It's a tricky, unusual situation. The balancing act, at worst, could mean a calamity for the British economy and prolonged volatility in markets. 

And at best, policymakers thread the needle and stabilize markets, tame inflation, and regain the confidence of traders and everyday folks dealing with a tough economy.  

Let's break it down. 

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1. The Bank of England announced Wednesday that it would snap up as many UK government bonds — "gilts" — as needed in order to stabilize debt markets, as well as delaying the start date of its bond sales. 

The decision to intervene followed the pound's drop to a record-low Monday, and a significant rise in yields on gilts, all in response to a dramatic, debt-funded tax-cut proposal. 

Remember Econ 101? A weaker currency means imports get more expensive, and higher bond yields mean government borrowing gets more expensive. 

So, the bank decided it wouldn't allow yields to climb to the point where they caused a credit crunch, making it impossible for households or businesses to take out loans. 

After it said it would make temporary purchases of gilts until October 14 at "whatever scale necessary," the yield on the UK 10-year bonds did fall 43 basis points to 4.08%, after closing at 4.51% on Tuesday. 

"The Bank of England is facing a very, very difficult dilemma right now," Christoph Schon, senior director of applied research at Qontigo, told me on the phone from London yesterday. "The bank wants to quiet down markets and stabilize credit conditions in the UK."

Schon added that the volatility has made forecasting all but impossible, and that the bank is deploying two opposing forces simultaneously. 

"There's a lot of concern and confusion," he said. "Really, there's almost no trust in the prime minister and the Chancellor."

The UK's bond-buying spree is quantitative easing, which usually is how banks stimulate economies via injecting more liquidity into them, as Insider's Theron Mohamed writes. 

It can, however, stoke inflation, which goes against the BoE's rate-hiking cycle which aims to bring down inflation. 

The intervention effectively undermines the bank's attempts to tighten monetary policy, as one program is expansionary and the other is contractionary. 

"In the same day, we've had rate hikes being priced in and out of the market," Schon said. "It's extremely volatile right now, and it's hard to trust any predictions."

What will it take for bond market traders to regain confidence in the UK debt market? Email prosen@insider.com or tweet @philrosenn. 

In other news:

2. US stock futures fall early Thursday, as the BoE-driven relief rally fades and billionaire investor Ken Griffin warns a US recession is inevitable. Meanwhile, a new leak has been discovered on the Nord Stream 1 and 2 gas pipelines in the Baltic Sea, bringing the total number of breaches to four. Here are the latest market moves.

3. Earnings on deck: Nike Inc., Micron Technology Inc., and Next PLC, all reporting. 

4. This batch of high-quality stocks are poised to outperform as a volatile market sends the eurozone barreling toward a recession. Raging inflation, rate hikes, and an energy crisis have hurt European stocks recently. But UBS picked out 23 names that can weather the economic downturn and help investors navigate increasing volatility and risk. 

5. Mortgage rates continue to crush housing affordability in the US. The average interest rate on the most popular US home loan hit its highest mark since 2008 as the Fed continues down its hawkish policy path. Jerome Powell has warned that housing is likely to face a "correction" after the stretch of "red hot" price increases. 

6. China's yuan dropped to its weakest level in 14 years and remains on track for its worst annual loss since 1994. In 2022 so far, the onshore yuan has cratered 12% against the dollar as the Federal Reserve hikes interest rates. This week, the People's Bank of China has warned traders against speculation in the currency market. 

7. The US economy is heading for a hard landing and a downturn next year because of the Fed's aggressive tightening measures, according to Stanley Druckenmiller. "I will be stunned if we don't have a recession in '23," the billionaire investor told CNBC on Wednesday. See what else he expects to happen. 

8. Jeremy Grantham and four other money managers shared their top strategies for navigating a bear market in stocks. When the going gets tough in financial markets, it can be hard to know the safest places to invest your money and where to get the best returns. Here's what some of Wall Street's top experts had to say. 

9. Stifel's stock chief shared four places to put your money now as an "immediate window" for returns opens up even as stocks hit a near-term bottom. Barry Bannister said inflation is slowing fast enough that the Fed will announce a data-dependent pause by early next year — and that the S&P 500 could climb back to 4,400 before another sell-off and recession.

10. Apple stock dropped Wednesday on reports the company nixed plans to increase iPhone 14 production as demand slows. Bloomberg reported that the anticipated surge in buyers hasn't taken shape, and Apple suppliers could cut back assembly of the latest iPhone series by as many as 6 million units in the second half of 2022.

Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.

Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.