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FirstFT: BoE escalates bond buying

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The Bank of England battled a renewed sell-off in UK government bonds yesterday after its vow to end its emergency gilt-buying programme unsettled markets that were already unnerved by Prime Minister Liz Truss’s fiscal plans.

The central bank bought £4.4bn of gilts from investors, its biggest intervention since it entered the market last month to prevent “fire sales” by pension funds in the wake of the government’s “mini” Budget.

The sell-off had intensified earlier in the day after the BoE insisted the programme would end tomorrow, in line with comments by Governor Andrew Bailey that pensions funds had “three days left” to shore up their positions. Helen Thomas examines whether pension funds are ready.

The government’s 30-year borrowing costs leapt to as high as 5.1 per cent, before receding to 4.8 per cent in the wake of the BoE purchases. They ended last week at 4.39 per cent.

The BoE has stressed the need for action to mitigate risks in other parts of the financial sector, adding that “lessons must be learned” from the pensions crisis that triggered the unprecedented intervention.

Insiders hope tomorrow’s deadline will galvanise pension funds to find a way out of the crisis, but the BoE faces three main risks.

Line chart of yield on 30-year government bonds (%) showing gilts sell-off sending yields back to crisis levels

1. Fed fearful of doing ‘too little’ on inflation US Federal Reserve officials have doubled down on plans to tighten monetary policy, according to minutes from their September meeting. The EU’s top diplomat has warned the Fed is leading a rush of central bank rate rises that risks tipping the world into a recession.

  • Opinion: President Joe Biden, not the Fed, has the tools to cushion the global economic blow caused by domestic policy, writes Edward Luce.

2. Starlink terminals back online in Ukraine Internet devices made by Elon Musk’s SpaceX, which are used to communicate on the battlefield and had suffered outages, have come back online in the past few days, Ukrainian soldiers and officials said, restoring lines of communications in territory liberated from Russian occupation.

  • Military briefing: Russia is pressing Belarus to open a front in the war, which could force Kyiv to divert attention from its counteroffensives in the east and south.

  • In oil: Sri Lanka has begun importing large quantities of Russian oil, as cash-strapped countries take advantage of price discounts created by sanctions.

Thanks to readers who participated in our poll yesterday. Eighty-one per cent said the G7 should speed up the delivery of air defence systems for Ukraine.

3. Goldman Sachs sounds alarm on UK commercial property Billions of pounds could be wiped off the value of commercial property because of the sharp rise in borrowing costs following the government’s “mini” Budget, the Wall Street bank has warned.

4. Deloitte vice-chair’s drunken tirade at Royal Ascot Stephen Cahill, who leads the Big Four accounting firm’s executive compensation practice in the UK, is to retire after an investigation into inflammatory comments he made while drunk at a work event at the Royal Ascot horse races in June.

5. IMF urges governments to rein in spending Rising interest rates and high inflation have made building resilience into public finances more important so countries can deal with a more “shock-prone” world, the IMF said yesterday as it ditched calls for governments to borrow more.

The day ahead

Nato defence ministers meet Officials from 30 allied countries gather in Brussels for what secretary-general Jens Stoltenberg called “a pivotal moment for our security” following Russia’s partial military mobilisation and attacks on Ukrainian cities. (FT, Nato)

LSE widens maximum spread on gilts In a sign of heightened volatility, the London Stock Exchange will let market makers quote a wider-than-usual spread in gilt prices until further notice. Such a move is very rare and normally only lasts a day.

Iraq presidential election Members of parliament will meet for their fourth attempt this year to elect a president. (Al Jazeera)

US inflation A widely anticipated consumer price index report is expected to show prices rose 8.1 per cent in September, a slight easing in the annual rate of inflation from 8.3 per cent in August.

  • In Europe: Germany publishes its final September inflation estimate, which is set to remain steady at 10.9 per cent. The eurozone releases industrial production figures, while the UK has its RICS residential property market survey.

RIBA Stirling Prize The winner is announced for one of the country’s most prestigious architecture awards.

What else we’re reading

Cost of living crisis puts lives on hold Hundreds of Financial Times readers around the world responded to our callout, describing how their lives have been shaped by surging food and fuel prices, swings in exchange rates and rising borrowing costs. Here are their stories.

China’s Xi Jinping problem In the run-up to the Chinese Communist party congress, Xi’s ascension to an unprecedented third term as leader marks the culmination of his relentless centralisation of power over the past decade. But in doing so, he has made it harder to reverse mistakes.

Children at a Beijing exhibition ‘100 Years Towards Greatness’
Children at a Beijing exhibition ‘100 Years Towards Greatness’. Xi’s dominance since he came to power in 2012 has made it much harder for China to modify potentially damaging decisions © Giles Sabrié/New York Times/Redux/Eyevine

Procrastination will not boost your creativity Everyone procrastinates to some extent. But a select group of us may be chronic procrastinators, who are tormented sufficiently by the malady to have really earned the badge. Can we do something about it? Delaying difficult tasks mostly leads to guilt and dread, writes Jemima Kelly.

How Walmart convinced critics it can sell more stuff and save the world The US retailer built an empire that employs 2.3mn people, stretching from India to South Africa and commanding a market value of roughly $350bn, by understanding our inability to resist a bargain. Now, even antagonists such as environmentalists have partnered with it.

Inside the Booker Prize On Monday at 9.45pm, one writer’s life will change forever with the announcement of the Booker Prize for Fiction. Along the way, there is a sense of triumph, but also spats, scandals and surprises. Take a look behind the scenes.

Wine

Jancis Robinson tasted 120 wines from some of South Africa’s most admired producers. The one that stood out comes in a 25cl can retailing for £5. She makes the case for canned wine. Yes, really.

Jancis Robinson: ‘I find it difficult to imagine entertaining friends over dinner with a series of cans on the table. But I could very easily imagine bringing them out of a chilled bag at Glyndebourne or anywhere outdoors’ © Leon Edler

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