The Bank of England raised rates by 0.5 percentage points Thursday.
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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 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 central bank said in a statement Tuesday.
“This enhancement to our operations will be in effect from 11 October 2022 until 14 October 2022 alongside the Bank’s existing daily conventional gilt purchase auctions.”
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 — known as gilts — 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 warned.
U.K. 10-year index-linked gilt yields rose by 64 basis points on Monday, representing a massive 5.5% fall in price. Yields move inversely to prices.
Meanwhile 30-year index-linked gilt prices were down 16% on the day, with yields now at around 1.5%, having been at -1.5% just six months ago.
Moves of these magnitudes would not ordinarily be expected in developed world sovereign bond market.
This is a developing story and will be updated shortly.