Bank of England doubles bond-buying limit amid pension fund fears
The Bank of England will double the value of the UK government bonds it can buy each day under the emergency scheme it launched to calm markets after Kwasi Kwarteng’s mini-budget.
Threadneedle Street was forced to intervene late last month amid a dramatic sell-off for long-dated government debt after the chancellor announced more than £40bn of unfunded tax giveaways directed at middle and high earners.
Pension funds managing vast sums on behalf of retired people across Britain came close to collapse amid the meltdown in the bond market, in a “doom loop” of selling pressure, before the Bank stepped in with a promise to buy up to £65bn of government bonds until 14 October.
In the final week of its operations, the Bank said it would increase the maximum value of bonds it could buy to £10bn a day from a current level of £5bn to ensure there was “sufficient capacity in the market” before the end of the scheme.
The central bank has so far bought only about £5bn in gilts over the first eight days of the scheme, significantly below a maximum limit of £40bn. However, it signalled it was “prepared to deploy this unused capacity” over the coming days to help ease the pressure in bond markets.
The yield on 30-year government bonds fell from a peak of about 5% on the day before the Bank’s intervention last month to just under 4%, although had steadily climbed back towards 4.5% in recent days.
It comes after yields – which rise as bond prices fall – surged by more than one percentage point in the wake of Kwarteng’s mini-budget.
Government bond yields across advanced economies have risen in recent weeks amid fears over sky-high inflation and rising interest rates from the US Federal Reserve. However, City economists have pointed the finger at
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