BoE director warns of threat from ‘biggest bond bubble in history’

Andy Haldane, a key Bank of England policymaker today expressed fears over the bursting of 'the biggest bond bubble in history' after electronic money printing exercises by the Bank of England and the Federal Reserve in the US.

He warned of risks to global financial stability from the bursting of a central bank-created global bond bubble, which, according to him, had started to deflate in recent weeks.

Haldane, a director at the Bank of England, offered wide-ranging evidence to MPs on the Treasury Select Committee in which he criticised the new financial policy committee (FPC). According to him, the biggest risk to the financial system came from a significant rise in the yields on government bonds.

He said, the biggest risk to global financial stability was a disorderly reversion of global bond yields, pointing to "shades of that" having taken place in the last two to three weeks.

He said the biggest bond bubble in history had been intentionally blown, adding there "had to be vigilance to that bond bubble deflating".

After hitting record low levels due to electronic money printing exercises by the Bank of England and the Federal Reserve in the US, recent weeks had seen them inch higher. UK 10-year gilts were trading at a yield of 2.17 per today, up from 1.6 per cent at the start of May.

Haldane today also admitted that Threadneedle Street (site of Bank of England) mishandled its instructions for banks to raise £25 billion by way of extra capital.

In written evidence submitted to the committee, he said the Financial Policy Committee regulator's 2011 recommendations that banks act to boost their capital buffers ''lacked clarity and decisiveness'' and failed to ''explain the significance of this package''.

The instructions of the FPC were laid out in March to allow banks to take future potential shocks and bad loan writedowns.