Market Extra: Bank of England announces additional support measures as emergency bond-buying plan winds down


The Bank of England said Monday it will increase the size of its daily gilt purchases and implement additional measures “to support an orderly end” to its emergency bond-buying plans announced last month, aimed at preventing a financial crisis in the U.K.

Britain’s central bank was forced to intervene in the bond market after the government’s proposed debt-funded tax-cutting budget sparked a spiral of selling that endangered the U.K.’s pension sector.

As the bank previously announced, its emergency intervention will end on Friday Oct. 14.

In the first of three measures, the BoE said it is prepared to boost the size of its daily auctions to “ensure there is sufficient capacity for gilt purchases” ahead of Friday. It now will buy up to £10 billion in bonds, up from a previous auction limit of £5 billion. However, it is sticking with its pricing policy that has seen the central bank refuse many of the bonds put up for auction.

In a second measure, the BoE plans to launch a temporary expanded collateral repo policy clients’ liability-driven investments (LDI) through liquidity insurance operations, which will run beyond the end of this week. It will accept collateral such as corporate bonds.

Finally, the BoE said it stands ready to support liquidity pressures facing LDI funds via regular indexed long-term repo operations.

“Beyond the end of this week’s operations, the Bank will continue to work with the U.K. authorities and regulators to ensure that the LDI industry operates on a more resilient basis in future,” it said.

The Bank of England has said that these LDI investments, totalling more than £1 trillion, were the reason it had to intervene.

The yield on the 10-year gilt TMBMKGB-10Y, 4.307% rose 8 basis points to 4.31%, though that’s below the 4.61% it spiked to after the poorly-received budget plans from U.K. Chancellor Kwasi Kwarteng.

The pound GBPUSD, -0.23% fell to $1.1051 from $1.1093.

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