The Bank of England is set to delay the sale of billions of pounds of government bonds in a bid to provide greater stability to gilt markets after the UK’s failed “mini” Budget.
The bank already had it delayed the start From the sale of 838 billion pounds worth of gilts bought under its quantitative easing program between October 6 and the end of this month. It is now expected to bow to investor pressure for another pause until the market calms down.
The Financial Times has learned that the bank’s senior executives came to the conclusion after judging the bullion market to be “very distressed” in recent weeks.
Investors also warned that the central bank’s plans to start selling bonds in its portfolio later this month could destabilize markets.
though Gives 30 years of golden harvest They fell to 4.32 percent from a recent high of more than 5 percent on Monday, remaining well above the 3.75 percent reached before the mini-Budget.
“I’m not sure it’s wise for them to go immediately because the market is so fragile right now,” said Jim Leaviss, chief investment officer for sovereign fixed income at M&G Investments.
Sandra Holdsworth, head of UK rates at Aegon Asset Management, said: “When they’ve had to support the market recently, I’m not sure they can go ahead without risking more trouble.”
BoE change set to halt start of UK QE unwinding – other central banks have also started the process to reduce bloated balance sheets and increase their freedom of maneuver in a future monetary or financial crisis.
BoE officials argue that inflation control can be done by changing interest rates, the opposite of QE, called quantitative tightening. It will take a decade or more to complete the QT at the pace set by the bank.
In Washington on Saturday, BoE Governor Andrew Bailey confirmed that the MPC will seek to use bank rates rather than asset sales as the main weapon in the fight against inflation.
“The MPC does not currently use asset stocks as an active monetary policy instrument” he spoke to an audience of central bankers. “The goal was to unwind the QE stock in a gradual and predictable manner and in a way that was not dependent on underlying economic conditions,” he said.
A vote by the bank’s Monetary Policy Committee will not be needed to delay the sale of the bonds. In making its previous postponement last month, the bank ruled that turbulent market conditions met the “high bar” it had set for rescheduling without a vote.
The BoE still hopes to offload £80bn of assets in its first year of running its balance sheet through a combination of maturing assets and asset sales.
The bank will likely stick to its policy of allowing securities to expire without reinvesting the proceeds of maturing bonds into others. Antoine Bouvet, rates strategist at ING, said active selling could cause more market turmoil, harm the economy and complicate plans to raise interest rates.
“You don’t want to let anything lower your chances of hiking rates, which are the only proven means of reducing inflation,” Bouvet said. “I’m not sure this market can handle a BoE sale either.”
Some analysts argue that the BoE may have to change its plans when it decides to start quantitative tightening.
Daniela Russell, HSBC’s head of rates strategy in the UK, said that instead of selling roughly equal amounts of short, medium and long-term bullion, the central bank should focus on shorter maturities. This would allow the long end of the gilt market is the focus of chaotic sales he added that there was a liquidity crisis in pension funds and “it continues to recover”.
