The Bank of England is ready to increase the size of its daily purchases of UK government bonds in order to “ensure there is sufficient capacity for gilt purchases” ahead of the £65bn scheme’s ending on Friday.
The BoE intervened in the gilt market last month following pleas from pension funds and the asset management industry to help stabilise the market after UK chancellor Kwasi Kwarteng’s financial statement sent shockwaves through the markets.
It has since carried out eight daily auctions, offering to buy up to £40bn worth of gilts, and has made only £5bn of bond purchases.
In a statement on Monday, the BoE 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 9am and will be set at up to £10bn in today’s operation,” the BoE added.
The BoE justified its intervention as a way “to restore market functioning in long-dated government bonds and reduce risks from contagion to credit conditions for UK households and businesses”.
The central bank also revealed a temporary expanded collateral repo facility, which it said “would enable banks to help to ease liquidity pressures facing their client LDI funds through liquidity insurance operations”. The facility will run beyond the end of this week.
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