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The Bank of England once again intervened in a bid to calm volatile bond markets, which are now a ‘material risk’ to the UK's ‘financial stability’.
The BoE said it has widened the scope of its bond-buying programme, due to end this week, to include purchases of index-linked gilts.
The central bank said the measure is a ‘further backstop’ as it bids to restore orderly market conditions.
‘The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts. Dysfunction in this market, and the prospect of self-reinforcing 'fire sale' dynamics pose a material risk to UK financial stability,’ Threadneedle Street warned.
On Monday, it doubled the size of its bond buying programme to £10 billion. It said the total size of the auctions will be ‘kept under review’.
‘All purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided,’ the BoE reassured.
Investor confidence in UK finances took a hit late last month following Chancellor Kwasi Kwarteg's mini-budget announcement. UK borrowing costs jumped as investors were spooked the unfunded tax cuts announced by Kwarteng.
On Monday, the chancellor bowed to pressure to bring forward the publication of his financial strategy and independent economic forecasts to the end of this month.
The pound traded at $1.1001 early Tuesday morning in London, down from $1.1038 at the equities close on Monday.
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