The Bank of England added inflation-linked government bonds to its program of bond purchases after a fresh attempt to extend support to pension funds failed to assuage worried investors.
The central bank on Tuesday said it would buy up to £5 billion of index-linked gilts each day through Friday, equivalent to $5.5 billion. On Monday, the bankThe central bank first launched its bond purchases on Sept. 28 in an effort to help pension funds that held large positions in derivative-based investments that were whipsawed by a furious selloff in U.K. government debt.
The central bank acknowledged that despite its efforts, Monday had seen “a further significant repricing of U.K. government debt,” and in particular index-linked gilts, which protect investors against rising inflation. “Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to U.K. financial stability,” the BOE said.
Asset managers who manage money for pensions on Monday said the BOE should have targeted inflation-linked government bonds, one of pensions’ biggest holdings and a market where it has become difficult to trade. One asset manager said his firm pushed the BOE to do so.
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Bank of England expands bond market intervention in effort to quell volatilityThe 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. No alternative volatility quellloooorrrr
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