Bank of England again intervenes in bond markets, warns of ‘material risks’ to UK financial stability

LONDON – IN Bank of England On Tuesday, it announced an expansion of its emergency bond purchase as it looks to restore order to the country’s chaotic bond market.

The central bank said it will expand its purchases of British government bonds – known as government bonds – to include government bonds linked to the index from October 11 through October 14. Retail Price Index.

The move marks the second expansion of the bank’s extraordinary bailout package in several days after that Maximum daily gold purchases increased On the Monday before the end of the planned purchase scheme on Friday.

The bank launched an emergency intervention on September 28 after an unprecedented sell-off in long-term UK government bonds threatened The collapse of multiple liability-driven investment funds (LDI)It is widely owned by the UK Pension Systems.

“The start of this week has seen another significant re-pricing of UK government debt, particularly index-linked securities. Dysfunctions in this market and the potential for reinforcing ‘quick selling’ dynamics pose a material risk to the UK’s financial stability,” the bank said in a statement on Tuesday.

UK 10-year Treasury yields rose 64 basis points on Monday, which is a massive 5.5% price drop. Meanwhile, the price of gold linked to the 30-year benchmark is down 16% on the day, with yields now around 1.5%, down from -1.5% just six months ago. Yields move inversely to prices.

Movements of this magnitude are highly unusual in the sovereign bond markets in the developed world.

“These additional operations will serve as an additional pillar to restore orderly market conditions through temporary absorption of sell-offs of index-linked securities that are in excess of the market’s ability to mediate,” the bank said on Tuesday.

“As with traditional gilt purchases, additional gilt purchases linked to the index will be time-limited and fully offset by the UK Treasury.”

On Monday, the bank set the upper limit of its daily gold purchases at 10 billion pounds ($11 billion), of which up to 5 billion pounds will be allocated to conventional bonds and 5 billion pounds to index-linked financial bonds.

The bank said the volume of auctions will remain under review, and all purchases will be canceled in a smooth and orderly manner once the risks to market performance are judged.