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Market Extra: U.K. bond yields surge as Bank of England emergency bond-buying program set to expire

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U.K. bond yields surged on Monday, on worries the pension fund market is not yet ready for the end of a temporary debt purchase program this week.

The yield on the 30-year gilt
TMBMKGB-30Y,
4.655%

surged 32 basis points to 4.71%. While that’s still below the 5.17% peak, it shows that worries about the imminent end to the central bank’s program were causing fear in the market.

The yield on the 10-year gilt
TMBMKGB-10Y,
4.463%
,
which the central bank has not been buying, rose 27 basis points to 4.50%.

The Bank of England said Monday it will increase the size of its daily gilt purchases and implement additional measures “to support an orderly end” to its emergency bond-buying plans announced last month, aimed at preventing a financial crisis in the U.K.

It now will buy up to £10 billion in bonds, up from a previous auction limit of £5 billion. However, it is sticking with its pricing policy that has seen the central bank refuse many of the bonds put up for auction.

On Monday, the central bank bought £853 million of gilts, while rejecting offers on £263 million worth of debt.

It’s also expanding the range of collateral available for liability-driven investments, or LDI.

The Bank of England has said that these LDI investments, totalling more than £1 trillion, were the reason it had to intervene.

— Steve Goldstein contributed to this report

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