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Pound plunges again as Andrew Bailey warns gilts bailout will end on Friday

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The Bank’s governor warned pension funds they have just three days left.

The Pound slumped again after Bank of England governor Andrew Bailey suggested that the bailout of the gilts market will end on Friday – before reports emerged that it might continue. 

In Washington, Andrew Bailey warned pension funds that they had ‘three days left’ before the bond buy-up ends. 

The Pound fell to as low as $1.097 in the wake of his comments. 

But in the wake of his comments, the Financial Times reported that bank insiders suggested that the emergency bond-buying programme could continue past Friday. 

‘You’ve got three days left’

Speaking at an event in Washington, Bailey said, ‘We have announced that we will be out by the end of this week. We think the re-balancing must be done.

‘And my message to the funds involved and all the firms involved managing those funds: You’ve got three days left now. You’ve got to get this done.’

The Bank has supported the bond market for two weeks in the wake of Kwasi Kwarteng’s ‘mini-budget’ amid fears that plummeting prices would create a ‘fire sale’. 

In a round of interviews this morning, Business Secretary Jacob Rees-Mogg appeared to place some of the blame for the recent market chaos on the Bank of England, rather than the Government. 

He said, ‘The Bank of England is obviously operationally independent, and that’s quite right, and that the Governor will make decisions in accordance with the markets. 

‘But the Bank of England does have responsibility and has had responsibility for a very long time to ensure the orderly functioning of markets and, therefore, it intervenes from time to time when there are unexpected events.’

The Bank of England stepped in yesterday with further emergency measures to calm markets, just a day after its last intervention, warning of a “material risk to UK financial stability”.

UK financial stability at risk

The Bank has said it will buy further government bonds, including index-linked gilts, in an effort to avoid a sell-off which could lead pension funds to collapse. 

In a statement, Threadneedle Street said, “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.

“Therefore the Bank is announcing today that it will widen the scope of its daily gilt purchase operations also to include purchases of index-linked gilts. This enhancement to our operations will be in effect from 11 October 2022 until 14 October 2022 alongside the Bank’s existing daily conventional gilt purchase auctions.”

The Bank has made multiple interventions in the gilt market for government bonds since Kwasi Kwarteng and Liz Truss’s ‘mini budget’ spooked investors. 

Sandra Holdsworth, UK head of rates at Aegon Asset Management told the FT, “Two interventions in 24 hours is pretty extraordinary.”

Holdsworth warned that the problems in the UK pension industry appear to be “much bigger” than they appeared last week.

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