Andrew Bailey, governor of the Bank of England, has warned pension funds that they have three days to sort out their liquidity before its emergency bond buying support ends.
Speaking at an event in Washington, Bailey said: "We will be out by the end of the week. We think this rebalancing must be done and my message to funds and firms involved is that you have got three days to get this done."
The comments come in the face of pleas yesterday (11 October) from the pensions industry for the bank to continue its emergency support amid fears of another bond selloff when the backstop is removed.
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This was despite the central bank expanding its emergency bond buying to include index-linked gilts as well on Monday (10 October), which would be carried out until Friday 14 October.
But the bank has maintained it messaging that this was just a temporary programme and not a monetary policy tool.
However, the Financial Times reported that multiple bankers have been told by the central bank that it may extend the bond-buying programme past the end of this week if liability-driven investment (LDI) managers still lack cash reserves.
"They told us that they were watching the LDI managers closely to see whether they had managed to generate enough liquidity for their clients to cope with margin calls and would decide whether to extend the facility on Thursday or Friday," one banker told the Financial Times.
The central bank embarked on its emergency regime to try and bring financial stability to the UK market after the government's Mini Budget sent yields shooting upwards and the pound falling almost to parity with the dollar.
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It was mainly pushed to intervene by the calls from LDI fund managers that they would be forced to sell large quantities of long-term gilts in an increasingly illiquid market, pushing them to a negative net asset value which would see them wound up by the end of the week.
This was the trigger point as a large number of the gilts in these funds are held by banks as collateral.
