(Bloomberg) -- Yields on 10-year U.S. Treasury notes reversed sharply lower after touching the highest since October 2008 as the Bank of England said it would carry out temporary purchases of long-dated UK bonds to help restore order to the market. 

The benchmark US 10-year yield was little changed at 3.945% after earlier climbing to 4.015%. But Treasuries remain headed for their biggest annual loss since least 1973, with a Bloomberg gauge of the debt slumping 14% this year. UK 30-year borrowing costs slumped as much as 72 basis points to 4.26%, having surged to the highest since 1998 before the BOE signaled its intention.

Still, an index of US sovereign securities extended its worst year since at least the 1970s after St. Louis Federal Reserve President James Bullard warned the central bank has to keep raising interest rates to retain its credibility. US debt has also been under pressure recently due to speculation the sliding yen will compel Japan to conduct more intervention, potentially funded by Treasuries sales.

Poor liquidity as central banks trim their balance sheets and rising volatility may be exacerbating the financial turmoil. The Fed accelerated the unwinding of its balance sheet this month in what’s known as quantitative tightening, while the Bank of England said its bond selling plans will be pushed back to the end of October, having originally intended to begin sales next week. 

“Market liquidity has dried up, so selling can easily accelerate in one direction, especially as there are plenty of investors who are ready to cut losses,” said Eiichiro Tani, chief strategist at Daiwa Securities Co. in Tokyo. “The central banks’ quantitative tightening is having a significant impact over market liquidity.”


(Updates throughout)

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