The Bank of England has expanded its emergency bond-buying as it tries to restore order to the
country’s struggling bond market.
The central bank said it will widen its purchases of British government bonds, known as “gilts,”
to include index-linked gilts from October 11 until October 14.
Index-linked gilts are bonds where payouts to bondholders are benchmarked in line with the
British retail price index.
The move marks the second time that the Bank of England has intervened in the bond market.
The central bank launched its first emergency intervention on September 28 after an
unprecedented selloff in long-dated British government bonds threatened to collapse multiple
liability driven investment (LDI) funds that are widely held by pension funds in the United
Kingdom.
British 10-year index-linked gilt yields rose by 64 basis points on news of the latest intervention,
representing a massive 5.5% fall in price.
The 30-year index-linked gilt prices were down 16%, with yields now at around 1.5%, having
been at -1.5% six months ago.
The Bank of England has also set the upper limit of its daily gilt purchases at £10 billion ($11
billion U.S.), of which up to £5 billion will be allocated to conventional gilts and £5 billion to
index-linked gilts.
The turmoil in bond markets was caused by U.K. Finance Minister Kwasi Kwarteng’s
controversial fiscal policy announced on September 23, which contained debt-funded tax cuts
as part of the Conservative government’s aim to drive economic growth in England to 2.5%.
