Bank of England doubles down on potential bond buybacks as emergency plan expires

LONDON (Reuters) – The Bank of England sought to calm fears this week over the end of its program designed to calm turmoil in the government bond market, announcing new safety net measures including a doubling of the maximum size of its debt purchases. their appearance.

Finance Minister Kwasi Quarting last month sparked a bond crisis with plans for unfunded tax cuts, leading the Bank of England to say on September 28 it would buy up to 5 billion pounds ($5.53 billion) a day in government bonds for at least 20 years. Until October. .14.

So far, the Bank of England has bought well below the daily minimum, but on Monday said it was taking more steps to ensure the scheme runs smoothly.

“In the final week of operations, the Bank is announcing additional measures to support an orderly termination of its purchase plan,” the Bank of England said in a statement.

Despite raising the maximum auction size to £10 billion in Monday’s operation, the Bank of England bought just £853 million worth of debt. Read more

That has left the total bonds acquired since the emergency program was launched at less than 6 billion pounds, compared to a maximum of 50 billion pounds it could have bought.

The Bank of England said in its statement earlier on Monday that it was ready to publish unused purchasing power in the remaining auctions this week.

The Bank of England also said it would launch a temporary extended collateral repurchase facility to help banks ease liquidity pressures facing client money caught up in the turmoil, which threatens pension funds.

The liquidity lockout will extend beyond the end of this week and will accept a larger-than-usual range of collateral, including corporate bonds.

In a third move, the Bank of England said it was ready to support further easing the liquidity pressures facing liability-driven mutual funds through regular indexed long-term repurchases every Tuesday.

The sharp sell-off in UK government bonds after Quarting’s “mini-budget” sparked a scramble for cash by UK pension funds that were forced to post emergency guarantees in LDIs.

In a move aimed at calming investor nerves, Kwarteng said Monday that he will present his medium-term financial plan, including an explanation of how the tax cuts will be paid, through Oct. 31 from Nov. 23, with a separate budget. Forecasts are published on the same day.

The earlier date will allow the BoE to understand the government’s tax and spending plans before announcing its next interest rate decision on November 3.

“You have a lot of risk events coming up,” said Pooja Kumra, chief European interest rate analyst at TD Securities. “The markets will consider every auction.”

UK 20- and 30-year bond yields jumped nearly 30 basis points on Monday, approaching levels during the worst of the market crash triggered by the Kwarteng mini-budget and adding to a string of recent daily increases.

Antoine Buffett, ING strategist, said the low takeover of the BoE facilities thus far suggests that risk reduction by pension funds has been limited so far, and the central bank wanted to show it could deploy more support.

“The closer to Friday, the more gold will be sold,” Buffett said. “The bigger picture here is that the gold market is still underperforming.”

(dollar = 0.9035 pounds)

Additional reporting by Tommy Wilkes, Harry Robertson, Movija M and Sachin Ravikumar. Written by William Schomberg; Editing by Catherine Evans

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