- “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability,” the Bank of England warned.
- The move marks the second expansion of the central bank’s extraordinary rescue package in as many days, after it increased the limit for its daily gilt purchases on Monday ahead of the planned end of the purchase scheme.
LONDON — The Bank of England on Tuesday announced an expansion of its emergency bond-buying operation as it looks to restore order to the country’s chaotic bond market.
The central bank said it will widen its purchases of U.K. government bonds — known as gilts — to include index-linked gilts from Oct. 11 until Oct. 14. Index-linked gilts are bonds where payouts to bondholders are benchmarked in line with the U.K. retail price index.
The move marks the second expansion of the Bank’s extraordinary rescue package in as many days, after it increased the limit for its daily gilt purchases on Monday ahead of the planned end of the purchase scheme on Friday.
The Bank launched its emergency intervention on Sep. 28 after an unprecedented sell-off in long-dated U.K. government bonds threatened to collapse multiple liability driven investment (LDI) funds, widely held by U.K. pension schemes.
“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,” the bank said in a statement Tuesday.
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