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U.K. bond yields surged on Monday, on worries the pension fund market is not yet ready for the end of a temporary debt purchase program this week.
The yield on the 30-year gilt
TMBMKGB-30Y,
surged 32 basis points to 4.71%. While that’s still below the 5.17% peak, it shows that worries about the imminent end to the central bank’s program were causing fear in the market.
The yield on the 10-year gilt
TMBMKGB-10Y,
which the central bank has not been buying, rose 27 basis points to 4.50%.
The Bank of England said Monday it will increase the size of its daily gilt purchases and implement additional measures “to support an orderly end” to its emergency bond-buying plans announced last month, aimed at preventing a financial crisis in the U.K. That buying is still scheduled to end in Friday.
“Taking off the emergency QE band-aid – and replacing it with indirect liquidity support – opens the door to renewed repricing of UK assets while (hopefully) preserving BoE credibility and preventing a return of disorderly conditions,” said analysts at Evercore ISI.
It now will buy up to £10 billion in bonds, up from a previous auction limit of £5 billion. However, it is sticking with its pricing policy that has seen the central bank refuse many of the bonds put up for auction.
On Monday, the central bank bought £853 million of gilts, while rejecting offers on £263 million worth of debt.
It’s also expanding the range of collateral available for liability-driven investments, or LDI.
The Bank of England has said that these LDI investments, totalling more than £1 trillion, were the reason it had to intervene.
— Steve Goldstein contributed to this report
