BOE To Outline End Of Emergency Gilt Purchases ‘Shortly’

The central bank bought around £19 billion of long-maturity and inflation-linked gilts between Sept. 28 and Oct. 14.

04 Nov 2022, 08:14 PM IST

City workers stand in view of the Bank of England (BOE) 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.

(Bloomberg) -- The Bank of England will “shortly” announce plans to sell bonds it purchased earlier this year to help stave off a disorderly market rout, according to executive director for markets Andrew Hauser.

“We have been working at pace to design an exit strategy,” Hauser said at a European Central Bank conference Friday, adding the bank would give more details on timing over the next couple of weeks. “There will be no binding volume target for sales, but rather a demand-led approach guided by market appetite.”

The central bank bought around £19 billion of long-maturity and inflation-linked gilts between Sept. 28 and Oct. 14. Former Prime Minister Liz Truss’ tax-cut plans had sent markets into disarray and the intervention was designed to restore financial stability and stem a vicious cycle of collateral calls at pension funds.

Separately, Governor Andrew Bailey said in a letter to Chancellor Jeremy Hunt that the BOE will liaise with the UK Debt Management Office regarding the central bank’s plans to sell the long- and inflation-linked gilts it purchased in recent weeks in order to minimize interference with the DMO’s issuance program.

The remarks come at a fragile time for the market. While gilts have since stabilized, and the government has backtracked on its pledge for fiscal stimulus, investors still face a record net supply of bonds in the coming fiscal year. The BOE is also unwinding bond holdings amassed over years of quantitative easing.

“We will need to remain sensitive and, if necessary, appropriately responsive to still-febrile market conditions,” Hauser said.

UK bonds fell led by the long end after Hauser’s comments, with 30-year securities erasing earlier gains, sending yields as much as 14 basis points higher to 3.86%.

Unlike its QE program, designed to stimulate the economy, the BOE’s emergency purchases fall under its financial-stability mandate. To reinforce the distinction, they are held in a separate portfolio from the main asset-purchase facility.

(Adds correspondence from BOE to the UK Chancellor in fourth paragraph)

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