The Bank of England on Tuesday again announced bond intervention to restore order to the country’s chaotic bond market. The UK's central bank said that it will widen its purchases of UK government bonds — known as gilts to include index-linked gilts from October 11 until October 14.

In Index-linked gilts, the payouts to bondholders are benchmarked in line with the country's retail price index. This is the second expansion in many days after it increased the limit for its daily gilt purchases on Monday.

The Bank launched its emergency intervention on September 28 after an unprecedented sell-off in long-dated UK government bonds. The sell-offs had threatened to collapse multiple liability-driven investments (LDI) funds.

“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,” the bank said in a statement Tuesday.

On Monday, the Bank of England had set the upper limit of its daily gilt purchases at £10 billion ($11 billion) of which up to £5 billion will be allocated to conventional gilts and the remaining to index-linked gilts. The size of auctions will remain under review.

“These additional operations will act as a further backstop to restore orderly market conditions by temporarily absorbing selling of index-linked gilts in excess of market intermediation capacity,” it added. “As with the conventional gilt purchase operations, these additional index-linked gilt purchases will be time-limited and fully indemnified by HM Treasury.”

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