Bank of England delays long-dated gilt auction due to market turmoil

By David Milliken

LONDON (Reuters) -The Bank of England said on Thursday that it was postponing an auction of 600 million pounds ($774 million) of long-dated government bonds due on April 14 "in light of recent market volatility".

BoE Deputy Governor Sarah Breeden said the move was a precaution and should not be read as a signal about the direction of monetary policy or the BoE's broader asset sales.

British 30-year government bonds recorded their sharpest one-day fall since October 2022 on Wednesday, pushing yields to their highest since 1998, after U.S. President Donald Trump stepped up tariff plans.

The gilts reversed most of those losses on Thursday after Trump said late on Wednesday he would temporarily suspend many of the tariffs.

The BoE said the auction of gilts with a maturity of over 20 years - part of the BoE's efforts to sell down much of the 895 billion pounds of assets it built up between 2009 and 2021 as part of its quantitative easing stimulus - would be delayed until the following quarter.

Instead, the central bank will hold an auction of 750 million pounds of government bonds with a maturity of three to seven years on April 14.

"Sales are being conducted so as not to disrupt the functioning of financial markets, and only in appropriate market conditions," the central bank said in a statement.

The BoE is in the middle of a year-long 100 billion pound reduction of its gilt holdings, but the volume of outright sales is much lower than in previous years due to the maturity structure of the debt.

The initial start of the sales programme in 2022 was delayed by bond market turmoil that forced a BoE intervention following former Prime Minister Liz Truss's poorly received budget plans.

Breeden said the sharp swings in long-dated gilt prices reflected spillovers from problems in the U.S. Treasury market, where heavily leveraged investors had needed to sell bonds to meet margin calls, as well as a general lack of liquidity at the long-end of the gilt market.

Finance minister Rachel Reeves said on Tuesday that BoE Governor Andrew Bailey had assured her financial markets were functioning effectively.

However, Breeden said functioning in some markets had appeared under pressure on Wednesday, before easing on Thursday following Trump's latest change of policy.

"The underlying vulnerabilities have not gone away and so our need to remain vigilant remains," she said. "We judge the risks of a further sharp correction to risky asset prices to remain high."

($1 = 0.7754 pounds)

(Reporting by David Milliken; Editing by Suban Abdulla, William Schomberg and Alex Richardson)