The Bank of England has warned markets that its bond-buying program will end this Friday despite urgings from pension funds to extend the emergency support due to fears of more market instability.
Earlier on Monday the Bank had announced additional measures to support market functioning and an orderly end to its gilt purchase scheme.
In a statement the Bank said of the measures: “These included the launch of a Temporary Expanded Collateral Repo Facility (TECRF) through which banks would be able to help to ease liquidity pressures facing their client Liability Driven Investment (LDI) funds through liquidity insurance operations, and the expansion of the scale of its remaining gilt purchase auctions.
“The purpose of these operations is to enable LDI funds to address risks to their resilience from volatility in the long-dated gilt market. LDI funds have made substantial progress in doing so over the past week. However, the beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.
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“Therefore the Bank is announcing today that it will widen the scope of its daily gilt purchase operations also to include purchases of index-linked gilts.”
The index-linked gilts are a type of UK government bond that tracks inflation.
The Bank said the broadening of the measures would be in effect from 11 October to 14 October 2022 alongside the bond-buying program which commenced at the end of September.
In a report in the BBC, Bank of England boss Andrew Bailey said on Tuesday that help would stop at the end of the week, and urged pension funds to make sure that riskier investments were offset by less risky ones.
“You’ve got three days left now,” he told fund managers. “You’ve got to get this done.”
The pound dropped sharply against the US dollar to below $1.10 after Mr Bailey’s statement.
Pension funds have scrambled to raise money since UK finance minister Kwasi Kwarteng sparked a bond rout on September 23 when he announced the government’s plans for unfunded tax cuts.
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