The Bank of England bought no bonds today after buying just £22m instead of £5bn a day on Monday

The Bank of England bought no bonds today after buying just £22m instead of £5bn a day on Monday
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Not carefully turning this into QE, but a temporary “backstop” to calm the panic. And calmed the panic with minimal purchases.

By Wolf Richter for WOLF STREET.

It was the infamous Pivot back to QE: the Bank of England announced on September 28 that it would buy up to £5 billion of long-term UK government bonds (gold) a day “temporarily and purposefully”. Specifically, “The purpose of these purchases is to restore orderly market conditions.” The program will end on October 14.

That followed a burst in long-term gilt yields last week, with the 10-year yield approaching 5% on Sept. 28. Panic ensued after highly leveraged UK pension funds with £1.5 trillion in assets received margin calls on gold-based derivatives linked to their liability-based investment (LDI) explained here). Pension funds started dumping gold coins along with other assets to meet these margin calls, thus creating a death spiral for gold.

On September 28, the BOE stepped in and said it would buy up to 5 billion pounds a day in the secondary market through auctions until October 14. That said, it is not a new round of QE, but a backstop for gilts. a dysfunctional market. It would also give pension funds time to sort out their problems.

The announcement settled in markets and the 10-year gilt yield fell back below 4% and yields fell around the world as everyone breathed a sigh of relief that the panic had not spread. And the meme was born that the BOE was the first central bank to go back on QE.

But the BOE bought no bonds today, hardly any bonds yesterday, and very little last week.

The BOE bought very little during the first three days of the program (September 28, 29 and 30), with just £1.21 billion a day instead of £5 billion a day, according to the BOE’s daily announcement of gilt purchases. it happened program. It took almost nothing on Monday (October 3), just £22m with an M; and received £0 today (October 4th) – exactly ‘zero’:

The program has been found to be very effective in calming markets, eliminating panics and eliminating long-term returns without large purchases.

BOE uses reserve price in auctions. On Monday, gold received 1.91 billion pounds of offers to sell gold, rejecting all but 22 million pounds.

Today it received offers of £2.23 billion and rejected them all at reserve prices.

With these price caps, the BOE then states that this is not the start of a new cycle of QE, but a temporary “backstop” to calm the gilt market; and said he was serious about finishing the program on October 14, as announced.

BOE on October 3 he repeated “The aim of these operations is to restore orderly market conditions and act as a backstop to reduce any risks to UK households and businesses, from contagion to credit conditions.”

It said it was “studying demand patterns and will continue to use reserve prices to ensure the instrument delivers its trailing stop objective.”

And he said that “the Bank is ready to adjust any of the other parameters of the auction to ensure this goal.”

In a further sign that this is not a new round of QE, the same announcement said that starting October 4, gilt dealers are being asked to “specify” whether the bids are being made on their own behalf or on behalf of their clients.

The BOE is caught between an unruly gilt market and economy-damaging 10% inflation.

The yield on the 10-year bond fell nearly 100 basis points from the peak of the panic to 3.87%, where it stood on September 23:

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