Bank of England expands bond buying to avoid ‘fire sale’
The Bank of England stepped in with another emergency intervention in the markets on Tuesday in an attempt to stave off a “fire sale” of UK government bonds by pension funds.
In the second update for its bond-buying scheme in as many days, the Bank said it would expand its operations to include purchases of index-linked gilts, a type of UK government bond that tracks inflation.
Threadneedle Street said it was taking the step to further increase its emergency programme, which is due to expire on Friday, after a “significant repricing” for UK government debt this week.
UK government borrowing costs rose sharply on Monday to the highest levels since the financial market chaos triggered by Kwasi Kwarteng’s mini-budget in September, despite renewed efforts by the to smooth over the turmoil.
The central bank was forced to step in late last month amid a dramatic sell-off for long-dated government debt, with a promise to buy up to £65bn in UK government bonds in a scheme running until 14 October to ease market turmoil.
Sir John Gieve, a former Bank deputy governor for financial stability, said the central bank could be forced to extend its bond-buying programme for as much as a “couple more weeks” beyond this Friday.
“The [bond market] moves yesterday must have alarmed them,” he told BBC Radio 4’s Today programme. “The message may have been the market felt that there were still important investors who were exposed to a spiral developing, of having to sell gilts in order to find cash, in order to meet demands in the market.”
Gieve suggested the Bank was being forced to take action as a consequence of the chancellor’s mini-budget, which promised £45bn of unfunded tax cuts directed at middle and high earners.
“The internal workings of the
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