Bank of England Doubles Bond Buying Limit

The Bank of England, in London, England. (Yui Mok/PA Media)

The Bank of England (BoE) will double the amount of government bonds it can buy daily before the buy-back programme ends on Friday, the central bank said on Monday.

Between Monday and Friday, the bank will offer to buy up to £10 billion ($11 billion) of gilts per day, up from the previous limit of £5 billion ($5.5 billion) per day.

The BoE said the measure aims to support “an orderly end” of its emergency bond-buying programme.

The programme was introduced on Sept. 28 after a plummet in bond value following the government’s mini-budget announcement, which threatened to collapse pension funds and send bond prices on a further spiral.

In order to steady gilts, the bank said at the time it would buy bonds “on whatever scale is necessary” until Oct. 14.

By Monday, BoE had carried out eight daily auctions, offering to buy £40 billion ($44 billion) of bonds, and had made around £5 billion of purchases.

The gilts market dropped after the announcement, and yields rose across all maturities, as investors fretted about how the BoE would eventually sell these recent buy-backs.

“The market wants their intervention to be as little as possible because that means there is less to unwind eventually,” Simeon Willis, chief investment officer at consultancy XPS Pensions Group, said.

LDI Funds

The BoE also announced two further measures to help banks release liquidity pressure facing liability driven investment (LDI) funds.

LDI is a popular strategy used by pension funds to reduce risk of shortfall in money to pay pensioners, but it has been found wanting when markets move suddenly, potentially freezing pension funds.

The BoE said it will launch a temporary expanded collateral repo facility, which will run beyond Oct. 14.

The liquidity insurance operations will accept “a wider range of collateral than normally eligible,” such as corporate bond collateral, the bank said.

It also said it’s ready to support further easing of liquidity pressures facing LDI funds through its regular indexed long term repo operations each Tuesday.

The announcement, which was made before markets opened, was followed shortly afterwards by Chancellor Kwasi Kwarteng’s move to bring forward the publication of his medium-term fiscal plan and independent economic forecasts to Oct. 31.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said it was a “two-pronged attempt to calm markets.”

“Policymakers and politicians are clearly nervous about seeing a repeat of the mini-financial crisis unleashed following the presentation of the Truss administration’s slash and spend plans, and fresh moves are being made to try and repair the damage,” Streeter said.

She said there was “still much scepticism about the government’s plans just as Kwasi Kwarteng prepares to head to the International Monetary Fund’s annual conference where his policies are set for fresh scrutiny.”

Reuters and PA Media contributed to this report.