ver the last week, the markets in the United Kingdom have been nothing short of chaotic. As the value of government bonds plummeted, pension funds were forced to continue providing billions of pounds in security. Investment managers were forced to sell everything they could raise funds for, including government bonds in some cases. As a result, yields rose, even more, paving the way for another round of collateral calls. The tension on the Bank quickly mounted.
The central bank decided to act and make some changes. This included increasing the purchase of UK government bonds to £10 billion per day until October 14th.
The Bank of England mentioned that it planned to purchase up to £5 billion in gilts each day, for a total of £65 billion throughout the program. However, the maximum is now £10 billion. This was the initially agreed emergency support. According to a recent statement issued by the bank today,
"It was keen to use this unused capacity to raise the large limit of the remaining five bids above the existing level of up to £5 billion in each auction. The maximum bidding size will be revealed each morning at 9 a.m., and in today's operation, it will be set at up to £10 billion."
It should be acknowledged that the bond-buying program began last month. This arose as a result of an initiative within the UK government's Mini Budget.
As the initiative comes to an end this Friday, they intend to begin preparing for potential liquidity pressures.
Issued additional motions
In addition to the increased bond purchases mentioned above, the bank intends to implement the Temporary Expanded Collateral Repo Facility [TECRF]. This is not, however, restricted to the end of the week. TECRF is scheduled to run until November 10, 2022.
Through liquidity insurance operations, it would mainly concentrate on reducing strains on liability-driven investment techniques [LDI]. The central bank concluded by announcing that it was ready to assist LDI pension funds during its regular Indexed Long Term Repo operations.
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