European and American bond markets are in a state of panic! The Bank of England announced the cancellation of next week's long-term government bond sales.

On Thursday evening Beijing time, the Bank of England announced that, due to recent market volatility, it has canceled the plan to sell long-term government bonds originally scheduled for April 14, and will only sell short-term bonds instead.

(Source: Bank of England)

The Bank of England stated that it intends to reschedule the long-term bond auction to the next quarter, aiming to "cover all maturities as evenly as possible" during the process of reducing the bond holdings of the Asset Purchase Facility (APF).

A spokesperson for the bank described this move as a "precautionary measure."

As background, the closely watched yield on the UK 30-year government bond surged by 30 basis points on Wednesday, reaching a high of 5.64%, which is also the highest level since 1998. (UK 30-Year Government Bond Yield Daily Chart, Source: TradingView)

Strictly speaking,

the "blame" for the sharp decline in UK government bonds lies with Donald Trump across the ocean. His policies triggered a sell-off in US bonds, which in turn affected UK bonds that often move in sync with the US market. For the UK, the 30-year government bond is an extremely important and prominent asset.

Due to the favor of insurance companies and pensions for this product, the country has issued a large amount of such bonds. The volatility on Wednesday also reached the extreme levels seen since the "Liz Truss fiscal plan shock" at the end of 2022. Because Trump's tariff proposal also has the characteristics of being reckless and lacking sufficient consideration, financial markets have often compared him to Truss in recent days.

Regarding the severe volatility in UK and US government bonds, Tomasz Wieladek, Chief European Economist at T. Rowe Price, said: "Long-term bonds are gradually becoming a risky asset because there is great uncertainty and market liquidity is also very scarce."

In addition to investors eager to cash out, there is also a layer of concern: the global trade conflict triggered by Trump may force the UK government to cobble together some policies to cope with economic shocks, leading to even tighter finances and ultimately having to turn to "opening the fiscal faucet."

Sarah Breeden, Deputy Governor of the Bank of England, warned in a speech on Thursday that although the market is beginning to recover from the extreme turbulence of the past week, risk asset prices still face a high risk of significant correction.

Breeden said: "A series of tariff measures implemented and then partially revoked by the US government, even after the adjustments announced yesterday, still constitute the most significant shift in US trade policy in a century. Overall, tariffs may suppress UK economic growth." She also stated that although the decline in UK export demand may alleviate inflationary pressures, supply chain disruptions could also lead to price increases, so it is still too early to determine what decision to make at the interest rate meeting on May 8.

Currently, analysts are also paying attention to whether the recent severe market turbulence will have a longer-term impact on

the Bank of England's balance sheet reduction plan. Pooja Kumra, Senior Interest Rate Strategist at TD Securities, said that the latest developments indicate that if market volatility remains unhealthy as in the past few trading days, the lifespan of quantitative tightening may be very short. The Bank of England's decision "clearly suggests that a period of quantitative tightening freeze is approaching," especially for long-term bonds.

The Bank of England had previously planned to reduce its holdings of government bonds by £100 billion over 12 months starting from October 2024, including £13 billion in active sales.