The Bank of England Photo: BBC

Bank of England announces fresh measures to protect LDI pension funds from market shocks

*The Bank has also announced further measures to ‘support an orderly exit’ from its bond-buying scheme to allow banks to help ease liquidity pressures on Liability-Driven Investments pension funds

Isola Moses | ConsumerConnect

The Bank of England has doubled its daily limits on gilt purchases and announced further measures to protect pension funds from market shocks.

With its £65billion emergency bond-buying programme ending on Friday, the Bank said it would now offer to buy up to £10billion of gilts a day, double the £5billion pledged until now, reports ThisIsMoney UK.

Britain’s Central Bank was forced to prop up the government bond market after the mini-budget sparked a sell-off for the Pound and gilts, leaving some of the UK’s biggest pension funds close to collapse.

On 28 September, the Bank unleashed a £65billion bond-buying programme, but so far it has only bought around £5billion of Government bonds, or gilts, through eight daily auctions, report said.

On Monday, it said it was ‘prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level’, if required.

The Bank also announced additional measures to ‘support an orderly exit’ from its bond-buying scheme.

They include a temporary plan to allow banks to help ease liquidity pressures on liability-driven investment pension funds, or LDIs, which were forced to sell assets when gilt prices tumbled.

LDIs are investment products that use long-dated government bonds as collateral.

Under the new Temporary Expanded Collateral Repo Facility (TECRF), the Bank said it will accept a ‘wider range’ of collaterals beyond just gilts to include, for example, corporate bonds.

The scheme, which will run for a month until 10 November, aims ‘to enable liability driven investment (LDI) funds to address risks to their resilience from volatility in the long-dated gilt market’.

‘LDI funds have made substantial progress in doing so over the past week,’ it added.

Pension funds came close to collapse because they bought LDIs to hedge against rising interest rates.

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