The Bank of England said it would buy more government bonds to keep their price stable and prevent investors from selling them, which could put some pension funds at risk of collapse.
Citing a “material risk” to financial stability after the turmoil hit bond firms, the BoE split its program of buying up to £10bn of daily UK gilts to include up to £5bn of index-linked bonds .
The market turmoil had forced pension funds to sell bonds over concerns about their solvency and threatened to trigger a downward spiral in bond prices as more were sold.
The central bank said on Tuesday that despite its earlier bailout efforts, markets saw “another significant repricing of UK government bonds,” particularly index-linked gilts that protect investors from rising inflation.
“A dysfunction in this market and the prospect of self-reinforcing fire-sale momentum pose a significant risk to UK financial stability,” the BOE said.
It is the third time the bank has had to intervene since the government’s mini-budget caused alarm among investors.
The bank first stepped in on September 28, as investors began demanding higher interest rates on those bonds and government borrowing costs rose to worrying levels.
Wall Street Journal reported that the bond purchases briefly stabilized the British bond markets. But the sell-off has started again recently as the BOE’s scale of intervention has consistently underperformed market expectations. As of Friday, the BOE had pledged to buy up to £65 billion worth of long-term bonds. By Monday it had bought just over £5 billion.
