Bank of England increase bond purchases to £10 billion/day till Oct 14th

Sahana Kiran
Bank of England
Source – Anadolu Agency

The United Kingdom markets over the last week witnessed nothing but chaos. Pension funds had to provide billions of pounds in security as the price of government bonds plummeted. Investment managers were compelled to sell everything they could in order to raise money, even further government bonds in certain situations. As a result, yields increased even further, paving the way for a new round of collateral calls. The pressure on the Bank of England soon started building.

The central bank decided to step up and bring about certain changes. This included sprucing up the UK government bonds to £10 billion a day until 14 October.

The Bank of England stated that it would acquire up to £5 billion in gilts every day, or £65 billion over the life of the program. However, the maximum has now been raised to £10 billion. This was the emergency support that was previously set. In a recent statement, released today, the bank said,

“[It was] prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5bn in each auction. The maximum auction size will be confirmed each morning at 9 am and will be set at up to £10bn in today’s operation.”

It should be noted that the bond-buying scheme was rolled out last month. This emerged as an initiative, part of the UK government’s Mini Budget.

The Bank of England intends to prepare banks for the potential liquidity pressures as the initiative would complete its course this Friday.

More motions set by the Bank of England

In addition to the above increase in bond purchases, the bank intends to roll out the Temporary Expanded Collateral Repo Facility [TECRF]. This, however, isn’t limited to the end of the week. TECRF is expected to run until 10 November 2022.

This would primarily focus on reducing strains on liability-driven investment strategies [LDI] through liquidity insurance operations. The central bank concluded by stating that it was all set to aid the LDI pension funds during its routine Indexed Long Term Repo operations.