Bank of England expands gilt purchase operation

This enhancement will be in effect until 14th October 2022, alongside the bank’s existing daily conventional gilt purchases.

Index-linked gilts will be acquired via a separate auction each day between 2:15pm and 2:45pm — meaning the purchase of long-dated conventional gilts will now be carried out between 3:15pm and 3:45pm.

According to the bank, these additional operations are set to act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity.

The bank also announced on 10th October that it stands ready to purchase up to £10bn of gilts each day, of which up to £5bn will be allocated to long-dated conventional gilts and up to £5bn to index-linked gilts.

Commenting on the announcement, Samuel Mather-Holgate, managing director at Mather & Murray Financial, said: "The response of the Bank of England underlines its flexibility when it comes to intervening in the bond market, which is good news. 

“The not-so-good news is that it also shows how volatile the market is and the apocalyptic impact the government's ill-thought out mini-Budget and unfunded spending have had on gilts. 

“It also highlights the dangers of using derivatives in cautious markets, and begs the question what the FCA and PRA were doing to allow such financial weapons of mass destruction to be used on workers pension schemes."

Wes Wilkes, CEO at wealth managers IronMarket, added: "I question whether this latest action from the Bank of England will have any effect, and it's arguably naive to believe that we will see an orderly end to its gilt purchase scheme. 

“That said, Threadneedle Street has been put in an extremely difficult position by the government's policy messaging and while ordinarily, a back-stop buyer feels supportive, this time it just feels desperate. 

“Also, what stops the selling resuming once the back-stop is removed? The whole situation is a farce."