spending into three broad channels. first, the purchases of gilts will act to increase their prices and reduce their yields. this change in the relative attractiveness of holding gilts is likely to cause investors to reallocate their portfolios into other assets, such as corporate bonds, which in turn will tend to reduce the yields on those assets. in so doing, the borrowing costs faced by firms and households should fall. as of today, the bank has purchased £13bn of gilts from investors. second, purchasing assets with central bank reserves will significantly increase the amount of liquidity in the system. this expansion in the supply of money may in itself encourage greater levels of lending and borrowing. bank deposits are likely to increase, providing banks with a ready source of funding to finance additional lending. similarly, as the additional liquidity permeates through the economy, companies may feel less constrained by the need to hoard liquidity and more able to undertake investment projects. third, purchases of high - quality corporate debt should help to improve the functioning of corporate credit markets. strains on financial institutions ’ balance sheets, combined with heightened levels of uncertainty and risk aversion, have impaired the liquidity of key corporate credit markets. firms ’ access to some of these markets has been restricted and the cost of credit inflated. by purchasing assets in a targeted way, the bank can aid liquidity in these markets and so improve the availability of corporate credit. the bank has been purchasing commercial paper for over a month now. it made its first purchases of corporate bonds this week. and we are reviewing the case for intervention in other corporate credit markets. importantly, the objective of the bank ’ s operations within corporate credit markets is not to purchase a specific quantity of assets ; rather it is to improve the functioning of those markets. the scale of purchases required to improve market liquidity may in fact be relatively small : the very knowledge that the bank stands ready to purchase assets may be as beneficial as the actual asset purchases themselves. moreover, the required scale of purchases is likely to diminish over time as liquidity improves and private investors return to the market. it is important not to judge the potential significance of this channel by the scale of asset purchases. how can we monitor the effectiveness of the purchases? it is much too soon to come to a firm judgement about whether this programme of asset purchases is having its desired effect. in particular, the impact on the growth of broad money and credit will not begin to be disc

, or adjustment, will produce destabilising spillovers in the financial system. on the first – the probability of adjustment – it is widely agreed by economists that one symptom of global imbalances, the us current account deficit, is unsustainable. it cannot continue indefinitely at the same rate because eventually the us ’ s external debt - servicing burden would become too great. that there will be adjustment, somehow or other, is therefore viewed by most commentators as near certain. by contrast, while the low risk premia across credit markets are hard to explain, no one can say for certain that they are unsustainable. a number of changes in the environment point towards some sustainable reduction in risk premia : more credible monetary regimes ; more flexible labour and product markets, helping economies to adjust to nasty shocks ; improved instruments and markets for managing risk ; better diversified portfolios. whether or not that merits the degree of risk premia the importance of communication to monetary policy was explored more fully in tucker p m w ( 2006a ), “ reflections on operating inflation targeting ”, speech at chicago graduate school of business, may 2006, bank of england quarterly bulletin, summer 2006, pp 212 - 224. compression seen over recent years is open to question. for some while now, i have encountered few people in the market who regard credit risk as fairly priced. a distinction is typically drawn – including in the bank ’ s financial stability reports 2 – between a “ fast fuse ” risk, in which credit is abruptly repriced ; and a “ slow fuse ” risk, in which cheap credit leads over time to overleveraged borrowers and so to vulnerability to a deterioration in the global economy. as time passes, attention has perhaps been shifting to the longer - fuse risk, given signs of a pick up in aggregate corporate sector leverage and gradual dilution of covenants in loan terms and conditions, most obviously recently in so - called “ covenant - lite ” transactions in the leveraged loan market. 3 but, in contrast to global imbalances, no one can say with complete conviction that a lower risk premia environment is definitely unsustainable, which may contribute to explaining why few market participants seem prepared to bet on the time or scale of any correction. in terms of the second dimension – the probability that any adjustment would be disorderly – market practitioners at least seem to regard “ low risk premia ” more seriously than “ global imbalances ”. resolution