UK bond market pressure eases a bit as end of BoE buying nears

Longer-duration British gilt yields fell on Thursday, easing back from 20-year highs struck on Wednesday before the Bank of England bought 4.4 billion pounds ($4.88 billion) of debt at its daily reverse auctions – which are due to end on Friday.

Thirty-year gilt yields dropped 13 basis points on the day to 4.76% at 0807 GMT, after hitting a high of 5.1% on Wednesday, according to Refinitiv data.

Twenty-year gilt yields were 5 basis points down from Wednesday’s close at 4.85%, after a peak of 5.195% earlier that day.

However real yields for index-linked bonds – which were added to the BoE’s purchases on Tuesday after prices plunged on Monday – were mostly up slightly.

The BoE is due to hold its penultimate set of daily reverse auctions to buy long-dated conventional gilts and index-linked government bonds on Thursday, ahead of the programme’s scheduled end on Friday.

The BoE has also set up a repo programme designed to make it easier for banks to offer liquidity insurance to the liability-driven investment (LDI) funds hardest hit by the slump in bonds since finance minister Kwasi Kwarteng’s Sept. 23 mini-budget.

The repo programme is due to run until Nov. 10.

Governor Andrew Bailey has stated publicly that there will be no extension of the bond purchases programme, but some market participants think further assistance will be needed.

“The Bank is grappling with an internal tug of war in pursuing this policy,” said Susannah Streeter, senior investment and market analyst at brokers Hargreaves Lansdown (LON:HRGV).

“It needs to maintain the credibility of independence and not be seen as bailing out the government for reckless policies, but equally can’t stand by and see the bond market go into fresh meltdown,” she added.

The central bank bought 4.36 billion pounds of gilts at its reverse auctions on Wednesday. This was the most of any day since the programme began on Sept. 28 and almost all the bonds it was offered, but well below the maximum 10 billion pounds it had said it was prepared to buy.

($1 = 0.9017 pounds)