LONDON — The Bank of England has taken steps to ease concerns over the expiry at the end of this week of its emergency program to calm the turmoil in the government bond market, including a doubling of the maximum size of its scheduled debt buyback on Monday.
After Finance Minister Kwasi Kwarteng alarmed investors with a series of unfunded tax cuts last month, the central bank said on September 28 it would temporarily buy up to £5bn a day of gilts with a duration of at least 20 years.
So far the BoE has bought well below the minimum daily limit, but on Monday it said it was taking steps to ensure the program runs smoothly.
“During the final week of operations, the Bank is announcing additional measures to support an orderly end to its purchase program,” it said in a statement.
The BoE has so far offered to buy up to £40bn of gilts, but has only bought around £5bn.
“The Bank is prepared to deploy this spare capacity to increase the maximum size of the five remaining auctions above the current level by up to £5 billion at each auction,” the statement said.
The maximum auction size would be announced at 9 a.m. (0800 GMT) each morning and would be set at 10 billion pounds in Monday’s operation, although the central bank reserves the right to reduce bids.
The BoE also said it would launch a temporary expanded collateral repo facility to help banks ease liquidity pressures facing customer funds caught in the turmoil that threatened pension funds.
Liquidity assurance operations would continue beyond the end of this week and would accept a wider range of collateral than usual, including corporate bonds, the bank said.
Thirdly, the BoE said it was ready to support further easing of liquidity pressures facing liability-focused investment funds through its regular Indexed Long Term Repo operations each Tuesday.
The sharp sell-off in UK government bonds after the Kwarteng “mini-budget” sparked a rush for cash from UK pension funds which had to post emergency collateral in LDIs.
($1 = 0.9041 pounds)
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