Bank of England completes £19bn emergency bond sale after small budget | Bank of England

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The Bank of England has finished dissolving its emergency bond-buying plan to calm financial markets after Les Truss’ disastrous micro-budget last fall.

Threadneedle Street said it had completed the sale of £19.3bn of government bonds, three months after it was forced to intervene in the markets to stem an influx of pension funds.

According to Bloomberg, the bank made about £3.5 billion in profit through disposals. Amid rising government bond prices in recent months, the sale process began on November 29 and was completed on Thursday.

The central bank intervened with a promise to inject up to 65 billion pounds into the financial markets after the mini-budget revealed by Truss’ then-adviser, Kwasi Quarting, caused financial turmoil and fears of a financial crisis similar to that of 2008.

“The purchases were made to restore orderly market conditions in the wake of dysfunction in the UK gold market, and in doing so reduce the risk of contagion to the credit terms of UK households and businesses,” the bank said.

Funds tied to pension schemes for retirees across Britain came under severe pressure as bond markets sold off sharply after the tax and spending announcement, with the bank warning that a “significant number” risked bankruptcy if there was no intervention.

The Bank’s governor, Andrew Bailey, has directly linked market chaos to the mini-balance sheet, despite efforts by the Truss administration to blame global factors for the sharp rise in the yield – or interest rate – on British government bonds.

Bond yields have been rising across advanced economies amid the fallout from high inflation and with major central banks raising interest rates. However, Citi analysts said Britain was out of the ordinary, with the country suffering a “moderate premium” as global investors lost faith in the Truss government’s ability to manage the economy and public finances.

The yield on 30-year British government bonds is at the highest level since the 2008 financial crisis, rising by more than 1 percentage point in a matter of days to peak at nearly 5% after the mini budget. Since then, yields have fallen to around 3.7%.

Threadneedle Street said it had sold £12.1 billion of old conventional gold bonds and £7.2 billion of index-linked gold bonds.

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The bank is also selling billions of pounds of government bonds bought under its quantitative easing scheme, which was launched after the 2008 financial crisis and then expanded after the Brexit vote and during the Covid pandemic to support the economy.

In December, the bank said it cut the total stock of assets purchased under QE to £844bn, down from a peak of £895bn. Threadneedle Street is expected to incur a significant loss in dissolving the QE scheme, with estimates showing taxpayers on the hook of more than £100bn.

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