Bank of England doubles size of bond buy-backs

LONDON – The Bank of England moved to ease concerns about the expiry at the end of this week of its emergency program to calm turmoil in the government bond market, including a doubling of the maximum size of its planned debt buy-back on Monday.

After Finance Minister Kwasi Kwarteng alarmed investors with a string of unfunded tax cuts last month, the central bank said on Sept. 28 that it would temporarily buy up to 5 billion pounds a day of gilts with a maturity of at least 20 years.

So far, the BoE has bought far less than the minimum daily limit, but on Monday it said it was taking steps to ensure the scheme concludes smoothly.

“In the final week of operations, the Bank is announcing additional measures to support an orderly end of its purchase scheme,” it said in a statement.

The BoE has so far offered to buy up to 40 billion pounds’ worth of gilts but has only bought about 5 billion pounds.

“The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to 5 billion pounds in each auction,” the statement said.

The maximum auction size would be announced at 9am (0800 GMT) each morning and would be set at up to 10 billion pounds in Monday’s operation although the central bank reserved the right to reduce offers.

The BoE also said it would launch a temporary expanded collateral repo facility to help banks ease liquidity pressures facing client funds caught up in the turmoil which threatened pension funds.

The liquidity insurance operations would run beyond the end of this week and would accept a wider range of collateral than usual including corporate bonds, the bank said.

In a third move, the BoE said it was prepared to support further easing of liquidity pressures facing liability driven investment funds through its regular Indexed Long Term Repo operations each Tuesday.

The sharp sell-off in British government bonds after Kwarteng’s “mini-budget” sparked a scramble for cash by Britain’s pension funds which had to post emergency collateral in LDIs.

($1 = 0.9041 pounds)