The Bank of England insisted it was ending its emergency bond-buying program on Friday as planned, refuting claims it was considering an extension and expecting pension funds to raise extra cash in time to protect against future shocks.
A £65bn intervention by the Bank has failed to quell the turmoil in bond markets, with the value of government debt trading continuing to fall.
However, in a statement released on Wednesday morning after a scheduled monetary policy briefing, officials said: “As the bank has made clear from the beginning, the temporary and targeted purchase of female gilts will end on 14 October. The governor confirmed this position yesterday, and it has been made abundantly clear in contact with the banks at senior levels.”
Overnight, the Financial Times reported that the central bank was in contact with commercial lenders to say they were ready to extend the regime as needed. The Bank’s latest statement appears to contradict these reports.
The decision to close the scheme is intended to put pressure on pension funds to raise tens of billions of pounds to build up cash reserves and ensure they are protected against future shocks to the value of government bonds after the Bank withdraws its support.
However, the Bank is understood to expect demand to pick up towards the end of the week as pension funds caught up in the recent market turmoil rebalance their portfolios.
Publishing the minutes of the regular meeting of the financial policy committee, the Bank said that investors needed to “put their funds on a sustainable footing, for whatever level of asset crunch prevails when the Bank stopped buying gold”.
Gold yields continued to rise on Wednesday towards levels last seen before the Bank was forced to intervene on September 28, days after unfunded tax cuts announced as part of Chancellor Kwasi Kwarteng’s mini-budget drove the pound and prices of British bonds to fall.
The government pays a fixed interest rate on its bonds. As the bond’s trading price falls, the interest rate or yield rises as a percentage of the price. The yield on the 20-year note rose above 5% for the first time since Sept. 28 on Wednesday, hitting 5.1%. Meanwhile, the 30-year bond yield was at 4.98%.
The increases suggest that the Bank’s intervention, which was stepped up twice this week, has failed to slow the fall in the value of government debt.
On Monday this week, the Bank said it was doubling the value of bond purchases it was prepared to make each day from £5bn to £10bn, and on Tuesday it expanded the plan to buy a wider range of bonds, including shorted indexed ones . As markets closed on Tuesday, Threadneedle Street said it had spent £3.3bn buying bonds, marking a dramatic increase in the Bank’s spending, which totaled £5bn in the first eight days of the programme. .
Although pension industry leaders have called for the purchases to continue beyond this Friday, Bank of England Governor Andrew Bailey said on Tuesday night that the program would end, indicating that fund managers needed to rebalance their their investments to avoid another potential pension sale. assets.
The pound fell more than a cent against the US dollar after his statement, pushing it below $1.10.