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Bank of England steps in to buy long-dated bonds

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30-year yields tumble by 100 bps after BoE support

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BoE to buy up to 5 bln pounds of gilts a day until Oct. 14

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Gilt sales due to start next week postponed

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BoE still aims to reduce QE holdings by 80 bln stg

(Updates with result of first buy-back, details of plan)

By David Milliken

LONDON, Sept 28 (Reuters) - The Bank of England stepped into Britain's bond market to stem a market rout, pledging to buy around 65 billion pounds ($69 billion) of long-dated gilts after the new government's tax cut plans triggered the biggest sell-off in decades.

Citing potential risks to the stability of the financial system, the BoE also delayed on Wednesday the start of a programme to sell down its 838 billion pounds ($891 billion) of government bond holdings, which had been due to begin next week.

"Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability," the BoE said. "This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy."

The central bank said it was still committed to an 80 billion-pound cut over the next 12 months in its holdings of bonds bought after the global financial crisis of 2007-08 and during the COVID-19 pandemic.

British 30-year bond yields had hit their highest since 2002 earlier on Wednesday and traders said it was becoming increasingly hard to buy and sell bonds as no one wanted the risk of holding such a volatile asset.

Pension schemes which operate liability-driven investment (LDI) funds to meet regulatory requirements had been selling long-dated gilts to meet emergency collateral calls or reduce exposure, pensions advisers said.

"There are schemes running out of cash at the moment," one pensions consultant said before the BoE intervention.

"This was a response to a fairly specific issue with the LDIs and the relationship they have with pension funds," a source familiar with the BoE's decision said.

Left unchecked, collapsing gilt prices could have caused a vicious cycle of fire sales of assets, pushing prices yet lower and creating more forced sellers.

After the BoE announcement, long-dated bond prices surged with 30-year yields plunging more than a full-percentage point, their biggest one-day drop in Refinitiv records dating back to 1992.

The central bank put no limit on the size of its intervention but said it initially planned to hold daily auctions to buy up to 5 billion pounds of gilts with a maturity of at least 20 years, between Wednesday and Oct. 14.