(updated with details)
LONDON, Oct 11 (Reuters) – The Bank of England (BoE) said on Tuesday it would buy inflation-linked British government bonds until the end of the week, a further intervention aimed at stabilizing the debt market.
Citing a “significant risk” to financial stability following a fall in the prices of British sovereign bonds (“gilts”), the BoE said it would buy up to 5 billion pounds (5.7 billion pounds). euros) of inflation-indexed debt per day from this Tuesday.
Rather than raising the daily cap on redemptions of long-term Treasury bills to £10 billion as announced on Monday, the central bank is keeping the maximum amount up to £5 billion.
This new intervention of the institution represents a new pitfall for the Prime Minister, Liz Truss. The presentation at the end of September of a recovery plan providing for massive unfunded tax and tax cuts caused a collapse in international investor confidence in British assets.
Inflation-linked gilts, known as “linkers”, sold off on Monday despite the institution saying it was ready to double the maximum amount allocated to its purchases of government bonds under the program. emergency.
“The start of the week saw a further significant revaluation of UK government debt, particularly index-linked gilts,” the BoE said in a statement.
“The dysfunction of this market and the prospect of a self-reinforcing fire sale dynamic pose a significant risk to the financial stability of the United Kingdom,” she added. .
Investors are worried about how the UK debt market will move once most of the BoE’s emergency support measures end on Friday.
Linkers are typically held by pension funds which, after soaring bond yields, were forced to provide emergency collateral against derivatives as part of liability-driven investing. (Andy Bruce and Paul Sandle, French version Laetitia Volga, editing by Kate Entringer)