Bank of England reaffirms willingness to buy billions of pounds in gilts

LONDON (Reuters) -The Bank of England issued a statement on Monday in which it said it was reaffirming its willingness to buy up to 5 billion pounds ($5.65 billion) of long-dated gilts at each of its daily auctions, after rejecting almost all offers earlier in the day.

On Sept. 28, the BoE launched a programme to potentially buy up to 65 billion pounds of gilts with a maturity of 20 years in a series of operations running until Oct. 14, in a bid to tame soaring yields which threatened financial market stability.

The announcement itself led to an immediate slump in 30-year gilt yields, which fell to around 4% from a 20-year high above 5%.

However the purchase programme itself has seen only low amounts of gilts offered to the BoE - in contrast to operations under its previous quantitative easing programmes - and even fewer gilts have been bought by the central bank, which has rejected offers it deems to high.

In the four operations since Sept. 28, the BoE has bought less than 3.7 billion pounds of gilts so far compared with 20 billion pounds it might have, and has been offered under 8 billion pounds of bonds.

The BoE bought just 22.1 million pounds of gilts out of 1.9 billion pounds which were offered on Monday.

Gilt prices fell sharply afterwards, and 30-year yields jumped more than 30 basis points after the result was published just after 1345 GMT, rising from 3.65% to 3.97%.

In a later statement, the BoE said it was open to buy up to 5 billion pounds of gilts each day, but would stick with a policy of applying a reserve price.

"These reserve prices/yields are reviewed ahead of each auction to ensure consistency with the backstop nature of the scheme," it said.

"The Bank is studying patterns of demand and will continue to use reserve pricing in order to ensure the backstop objective of the tool is delivered," it added.

The statement also added a requirement for the primary dealers known as gilt-edged market makers (GEMMs) to tell the BoE if they were placing offers on their clients' behalf, rather than on their own account.

($1 = 0.8856 pounds)

(Reporting by David MillikenEditing by Mark Heinrich and Paul Simao)