The Gilt Storm Has Passed. The Damage Assessment Is Just Starting.
UK bond traders struggle toward another new normal as the central bank winds down its latest emergency intervention.
The UK government bond market has been in disarray since the cataclysm two weeks ago. The terrible reception to Chancellor of the Exchequer Kwasi Kwarteng's radical new economic plans sent yields soaring, triggering sudden margin calls for liability-driven pension fund investors.
That prompted the Bank of England’s successful emergency intervention. But its £65 billion ($73 billion) bond-buying pot — the Financial Stability Intervention — expires Oct. 14, leaving gilt traders to worry if the market can withstand the support’s removal. Early Monday morning, the BOE announced that it would step up the size of the daily operations until the end of this week and also provide a month-long collateral repurchase facility, with wider eligibility including corporate bonds.