The Bank of England’s temporary return to bond-buying has given pension funds and other institutions a month to sort out their books after a savage fall in gilt prices raised concerns over potential insolvencies, but the BOE remains determined to tighten monetary policy and will push ahead with plans to sell gilts a month later than planned on Oct 31.

The BOE acted after margin calls on institutional investors with hedged fixed income liabilities prompted further gilt sales, leading to more margin calls in a downward spiral. According to an Investment Association estimate UK pension funds had GBP1.5 trillion hedged with Liability Driven Investment (LDI) trades as of 2020.

The danger of serious financial instability prompted the BOE not only to push back the start of gilt sales by a month, but also to return to buying in the longer-dated section of the curve most crucial to pension funds. But this buying is “temporary and targeted”, it stressed.

Gilts rallied after the announcement, with 10s30s curve inverting for the first time this cycle at -9.6bp and at the lowest levels since 2008.