The Bank of England hits panic button yet again with emergency bond-buying plan

The Bank of England has hit the panic button yet again, moving to further bolster its emergency bond-buying plan. It's an attempt to stop tumbling government bond prices causing a market collapse.

The central bank warned the ongoing annihilation in the gilts market poses a “material risk to UK financial stability”. It will now widen the scope of its UK government bond-buying programme, which was launched in the wake of the mini-budget market turmoil, to include purchases of index-linked UK government bonds amid concerns over another “fire sale” of gilts.

It comes after the sell-off in government bonds – also known as gilts – resumed on Monday as investor concerns failed to subside despite action by the Bank of England to double its daily bond-buying limit and Chancellor Kwasi Kwarteng’s move to bring forward his new fiscal plan and independent economic forecasts to October 31.

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Long-dated gilt prices tumbled, which sent yields on 30-year bonds soaring to 4.7% on Monday – their highest level since the Bank of England was forced to step in last month to avoid a mini financial market crisis. The pound also fell to 1.10 US dollars as the two-pronged attack by the Bank and Chancellor did little to soothe market worries.

The Bank 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.”

It added that its latest efforts will “act as a further backstop to restore orderly market conditions”. Threadneedle Street intervened with