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BoE stays its course on bond sales, rates remain high

The Bank of England confirmed Tuesday that it intended to start selling government bonds at the end of October despite the tensions that persist on the British, with borrowing rates at very high levels.

It denied a Financial Times report claiming it was considering delaying the start of its UK treasury bill sales until markets calm down.

This article is inaccurate, assures a spokesperson for the central bank in a press release.

In the wake of this statement, bond yields went up, a sign of a drop in demand, before stabilizing: the rate for 10-year securities rose to 3.94% and that of 30-year securities to 4.30%.

The BoE had previously indicated that it wanted to start its sales of government bonds on October 31st while sales of corporate bonds are due to start on October 24th.

Some market players were expecting the central bank to postpone the start of sales again, especially since October 31 is already a busy day for British finance: the new Chancellor must present his full budget proposal by that date.

At the end of September and until Friday, the BoE had intervened on the government debt market, buying 19.25 billion pounds (about 22.16 billion euros) of long-term securities to avoid a vicious circle of sales of certain funds pension plans that caused the borrowing rate to skyrocket.

These funds used so-called LDI (liability driven investment) strategies, using derivative products.

LDI asset funds are now in a much better position to absorb shocks of this nature in the future, said BoE Deputy Governor Jon Cunliffe in a letter to the British Parliament published on Tuesday.

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In recent weeks, they have raised billions of pounds from their clients, pension funds, or by selling bonds, including the Bank of England, details Mr. Cunliffe.

However, he considers it necessary to increase the regulation of non-banking financial institutions, including pension funds, echoing the remarks of Franois Villeroy de Galhau, Governor of the Banque de France.

The Bank of England had suspended on September 27, in the midst of market turmoil, the planned start of the sale of the quantities of bonds it had accumulated, in particular through an asset buyback program (quantitative easing or QE), during the first months of the Covid-19 pandemic.

The BoE indicates that it holds 837.88 billion pounds (972.56 billion euros) in government bonds and 18.10 billion pounds (21.01 billion euros) in corporate bonds.

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