Andrew Bailey dashed the hopes of pension funds on Tuesday, ruling out continuing the Bank of England’s £65bn bond-buying intervention into next week.

The BoE governor said that although strains had been felt, market conditions in the government bonds “seemed calmer” on Tuesday after it had staged its second emergency intervention in two days.

“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,” Bailey said.

Sterling fell against the US dollar and euro after the governor’s words, dipping below $1.10 shortly after he spoke.

Bailey, speaking at an event organised by the Institute of International Finance in Washington, said the BoE had to be clear that financial stability interventions were temporary and any prolonged bond-buying would clash with the bank’s monetary ambition to raise interest rates.

From Monday, pension funds would only be able to access the short-term lending programme the BoE announced earlier this week and the central bank would not print money to buy more assets, he said.

That programme did not offer to buy government bonds but would lend money to offer a pressure valve for funds that needed cash quickly if government bond yields rose and they needed to post new collateral because their net asset position was negative.

The governor’s tough message came after he said he had been up over 24 hours watching market moves and staging a second emergency intervention in as many days on Tuesday, extending bond buying to index-linked government debt for the first time.

This week the BoE had to amend its original programme to act as a backstop to gilt markets twice in two days to avoid a vicious circle that was forcing pension funds to dump assets. It said its action was meant to avoid “dysfunction” in markets and prevent “a material risk to UK financial stability”.

Tuesday’s moves helped steady gilt markets on a day when the IMF reiterated its doubts about UK economic prospects. It followed the BoE’s increase on Monday of the programme’s daily maximum purchase level to £10bn.

But in a sign of persistent strains in the market, a late sell-off on Tuesday pushed the yield on the standard 30-year UK government bond as much as 0.14 percentage points higher to 4.83 per cent — its highest level since the BoE began emergency interventions in the gilt market last month. Bond yields rise as prices fall.

The pension industry had been calling on the BoE to extend the bond-buying programme’s Friday deadline because of concerns that funds do not have enough time to shore up portfolios against further shocks.

Before the governor spoke, they had been calling on the BoE to keep the programme open next week. The Pensions and Lifetime Savings Association, which represents schemes with about 30mn savers with £1.3tn in retirement money invested, said “many” funds would prefer the BoE’s programme to be extended at least until the government unveils debt-cutting plans on October 31.

“It makes sense that the bank may not be able to fully wind up its support schemes until the markets’ fiscal concerns have eased,” said Paul Dales, chief UK economist at Capital Economics, the consultancy. “We would not be surprised if the bank had to extend its pledge to buy gilts beyond Friday, 14th October.”

“Two interventions in 24 hours is pretty extraordinary,” said Sandra Holdsworth, UK head of rates at Aegon Asset Management, adding that the BoE’s steps showed how the problem in the pensions industry was “much bigger than anyone thought a week ago”.

Downing Street on Tuesday said prime minister Liz Truss would not drop the tax cuts in the “mini” Budget despite the central bank’s repeated interventions.

“The prime minister remains confident that the measures set out will deliver growth in the UK economy,” a spokesperson said, adding that the additional measures announced by the central bank on Tuesday “will support an orderly end to the BoE’s temporary purchase scheme”.

But, signalling its concern at Kwasi Kwarteng’s unfunded tax cuts, the IMF said the chancellor’s fiscal package was “complicating the fight against inflation”.

The fund’s head of financial stability added that the only way yields on UK government bonds were likely to come down was if the government reversed course on its tax cuts. Tobias Adrian said the tax cuts led markets to expect the BoE would have to raise interest rates more than otherwise. “Certainly, a change in fiscal policy would change the trajectory of interest rates going forward,” he said.

Additional reporting by Harriet Agnew, Chris Flood, Jim Pickard and Mark Wembridge

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