The Bank of England has expanded its temporary gilt purchase operations to include index-linked gilt to stave off "dysfunction" in the debt market.
According to a statement published this morning (11 October), the Bank will carry out purchases of index-linked gilts for the remainder of the intervention, buying both index-linked and conventional gilts until 14 October 2022.
The expanded policy has been brought in to prevent "dysfunction" in the market, which has already seen "further significant repricing of UK government debt" this week.
Alongside dysfunction, the Bank hopes the move will prevent "self-reinforcing ‘fire sale' dynamics" from taking hold.
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Yesterday (10 October), the daily limit of the purchasing scheme was increased to £10bn, with the full amount dedicated to conventional bonds. Today, this has been split, with £5bn reserved for long-dated conventional gilts and £5bn for index-linked gilts.
The Bank added the pricing of the additional operation reflect its "nature as a backstop" and not a monetary policy instrument.
All corporate bond purchase scheme sales have also been temporarily paused this week as the central bank imposes a hiatus on shrinking its balance sheet.
