Bank of England expands contingency plan to support bond market

The Bank of England stepped up action to help the market function as its emergency government bond-buying program entered its final week.

The UK central bank said it would increase the size of its buying operations to a maximum of £ for the next five days10 billion ($10.8 billion), up from £5 billion previously. In the BoE’s previous operations, it has bought a total of around £4.6 billion, about 12 percent of the £40 billion on offer.

Officials will also introduce a facility, which will run beyond the end of this week and is expected to allow banks to ease liquidity pressures facing liability-driven mutual funds, whose collateral claims were the focus of the gilt sell-off ahead of the BoE’s intervention.

The Temporary Expanded Collateral Repo Facility accepts an expanded range of collateral, including some corporate bonds. The BoE added that it is also ready to help through its regular repo-related deals.

The support is a follow-up to help the BOE provided last month to prevent market turmoil causing difficulties for LDI funds from infecting the entire financial system. In a letter to the chair of the Finance Committee last week, Deputy Governor Jon Cunliffe said the BpE had no choice but to step in to prevent fund managers from dumping £50bn worth of Gilts and triggering a market crash.

“The BoE is clearly trying to find more targeted ways to support LDI funds’ liquidity,” said Antoine Bouvet, Senior Rate Strategist at ING Groep NV. “Having struggled to prevent further long-end gilt rises, they now intend to expand their availability for funding (probably to allow them to meet collateral/margin calls).”

The BoE said it will continue to work with authorities and regulators to “ensure the LDI industry operates on a more resilient footing going forward”. Bank of England expands contingency plan to support bond market

Fry Electronics Team

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