BoE insists bond-buying scheme will end on Friday, yields rise

The central bank announced on Monday that the scheme, launched in the aftermath of the government’s controversial mini-budget, would come to an end on Friday.

The BoE said it wanted to ensure an orderly end, and would double the daily maximum auction size to £10bn to enable that.

But governor Andrew Bailey later unnerved markets by bluntly reiterating late on Tuesday: "We’ve announced we will be out by the end of this week. My message to the [pension] funds is you’ve got three days left."

With yields already edging higher, however, reports began to emerge that despite Bailey’s comments, the scheme could yet be extended.

According to the Financial Times, citing bankers briefed by the BoE, officials were considering a more flexible approach that could see the scheme extended into next week.

But in a statement issued late Wednesday morning, the central bank dismissed the reports. "As the Bank has made clear from the outset, the temporary and targeted purchase of gilts will end on 14 October," it said.

"The governor confirmed this position yesterday, and it has been made absolutely clear in contact with the banks at senior levels."

The UK 30-year yield ticked higher following the statement, ahead 0.2 percentage points to 5%, while 10-year gilt yields were at 4.45%.

Innes McFee, chief global economist at Oxford Economics, said: "Bailey’s insistence that emergency support will end on Friday is an unsustainable position that we expect to be reversed quickly.

"The muted sell off in long-end gilt yields this morning - 30-year yields are up 27 basis points currently - already seems to be pricing in a climb down and the extension of support.

"The investment strategies of UK pension funds are born out of necessity rather than excessive risk taking, albeit with questionable implementation, so it’s not clear that intervention by the central banks to help markets operate efficiently is inappropriate."

McFee concluded: "If the BoE fails to calm the rise in gilt yields, this will add significant further downside risk to our forecast of a moderate UK recession."

Neil Wilson, chief market analyst at Markets.com, said: "The BoE is suffering from a form of communication breakdown that’s left everyone in the market a bit dazed and confused.

"The BoE is in a hell of a position - the comments only underline the conflicting forces it is trying to combat. It is trying to do two mutually contradictory things at once, primarily because of political choices."

Victoria Scholar, head of investment at Interactive Investor, said: "The BoE’s messaging to the market over the last 24 hours has been conflicted and confused, causing unnecessary gyrations to the pound and adding to the sense of instability in the markets.

"This is not the first time that Bailey has had troubles guiding the market: he was labelled the unreliable boyfriend last November for signalling lift-off on interest rates but keeping rates unchanged."