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BOE To Start Unwinding Emergency Bond Purchases From Nov. 29

The central bank said it intends to make the UK government bonds available to interested buyers from Nov. 29.

Morning commuters pass the Bank of England (BOE), left, and The Royal Exchange, in the City of London, UK, on Monday, Oct. 17, 2022. The Bank of England said it was restarting its corporate bond-selling as it looks to return to normality in the wake of a sustained selloff in UK assets.
Morning commuters pass the Bank of England (BOE), left, and The Royal Exchange, in the City of London, UK, on Monday, Oct. 17, 2022. The Bank of England said it was restarting its corporate bond-selling as it looks to return to normality in the wake of a sustained selloff in UK assets.

The Bank of England signaled it will move cautiously in selling off the £19 billion ($22 billion) of UK government bonds it snapped up in emergency action in recent weeks, outlining a “demand-led” approach to the sales.

The central bank said it intends to make the UK government bonds available to interested buyers from Nov. 29. The sales “will commence not at a fixed pace, but will be designed in a demand-led way that is responsive to prevailing market conditions,” according to a statement on Thursday.

The move is intended to prevent renewed dysfunction in the UK bond market, which remains fragile after a record sell-off exacerbated by forced-selling by pension funds prompted the BOE to intervene.

The central bank bought gilts between Sept. 28 and Oct. 14 to avoid what it called a “fire sale” that threatened financial stability. It stepped in as trading became disorderly amid a cascade of collateral calls facing pension funds. The turmoil followed Liz Truss economic plan during her short term as prime minister, which has been reversed by her successor, Rishi Sunak.

The bonds the BOE bought during the emergency intervention were long-maturities or linked to inflation, since those were favored by the pension funds at the heart of the stress. 

The intervention contrasts with another program of asset sales related the BOE’s asset purchase program built up during a decade of quantitative easing. The bonds subject to Thursday’s announcement were bought under its financial-stability mandate and remain separate from the QE bonds, which the bank is unloading separately. 

BOE To Start Unwinding Emergency Bond Purchases From Nov. 29

The BOE said that it would allow buyers to express interest in purchasing the bonds held in the portfolio via the form of a so-called “reverse enquiry window.” The acceptance of bids would be based on demand and their attractiveness relative to market levels.

“This means that there will be instances when the Bank could sell a larger volume of bonds if demand is particularly strong; but also times when the Bank will sell few or no bonds if there is insufficient demand,” the BOE said in the statement. 

The BOE said it would publish further operational details in a market notice in the week commencing Nov. 21, and will hold a call with market makers next week.  

(Updates with details from the statement.)

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