The aftermath of the mini-budget could have seen a £50bn fire sale of UK government bonds by funds connected to the pensions industry, the Bank of England has said.
There was risk of a downward “spiral”, it said, as increases in the cost of government borrowing hit the funds.
The Bank feared these funds would be forced to sell their government debt holdings, adding to the market turmoil.
The cost of borrowing saw record increases for two days, the Bank said.
The rise in borrowing costs over four days was “three times larger than any other historical move”.
The Bank stepped in to calm markets last week following fears that some types of pension funds were at risk of collapse.
It pledged to buy up to £65bn of government bonds after the mini-budget sparked turmoil on financial markets and the pound plunged.
Investors had demanded a much higher return for investing in government bonds, causing some to halve in value.
The Bank said that the market in long-term loans to the government lasting three decades, known as 30-year gilts, saw two days where the effective cost of borrowing saw record increases, on its data which starts in 2000.
-BBC