Bank of England wades into UK’s inflation-linked bond market

The Bank of England acted again on Tuesday to stem a collapse in Britain’s 2.1 trillion pound ($2.31 trillion) government bond market by announcing a move to purchase inflation-linked debt until the end of this week.

The BoE said it would buy up to 5 billion pounds ($5.51 billion) of index-linked gilts per day, starting Tuesday, to run alongside same-sized purchases of conventional long-dated gilts.

Britain’s inflation-linked gilts – known as linkers -suffered a massive sell-off on Tuesday, despite the BoE doubling the maximum size of its buy-backs of conventional long-dated gilts.

The announcement comes a few hours before Britain’s Debt Management Office will attempt to sell 900 million pounds of a linker due in 2051 into the market.

“The beginning of this week has seen a further significant repricing of UK government debt, particularly index-linked gilts,” the BoE said in a statement.

“Dysfunction in this market, and the prospect of self-reinforcing ‘fire sale’ dynamics pose a material risk to UK financial stability.”

Finance minister Kwasi Kwarteng last month sparked a bond rout with plans for unfunded tax cuts, prompting the BoE to say on Sept. 28 it would buy up to 5 billion pounds ($5.53 billion) a day of gilts of at least 20 years duration until Oct. 14.

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