The Bank of England (Central Bank, BOE) confirmed on Tuesday (18th) that it will start “quantitative tightening” (QT), and will start selling bonds in two weeks, but considering the market turmoil caused by the new government’s mini-budget, it will not sell long-term bonds at the beginning. public debt.
In order to suppress inflation, BOE President Andrew Bailey has started to raise interest rates several times this year, and the measure of not investing principal after the bond matures has been maintained for a period of time. The sale of assets represents entering the next stage, which can also allow The central bank removed measures seen as propping up the government so as not to undermine its credibility.
The exclusion of long-term debt from the asset sale plan could be seen as a practical compromise, allowing Bailey to continue pushing forward with a plan to shrink its balance sheet without jeopardizing the long-term debt market, which has recently been stabilized by emergency bond purchases.
New Prime Minister Truss and then Finance Minister Kwasi Kwarteng announced plans to cut taxes on September 23, forcing some pension funds into bond calls and threatening Britain’s financial system.this led toGBPThe U.S. dollar once depreciated to a record low, the British government bond yields jumped, and after taking office for just 38 days, BOE also announced the purchase of bonds to save the market on September 28, and reduced the balance sheet originally scheduled to start on October 3. Postponed until October 31st.
After foreign minister Jeremy Hunt, who took over as chancellor, announced on Monday that he would withdraw almost all of the mini-budget plans proposed by the Truss government and ensure that public debt would be reduced in the medium term, Bailey also revealed that he would start a plan to shrink the balance sheet.
Krishna Guha, head of central bank strategy at Evercore ISI, said: “In the current market conditions, this is still a strong plan. The Bank of England continues to promote large-scale QT, which is a key to maintaining independence and defending credibility in the midst of the UK’s fiscal turmoil. necessary action.”
new sale schedule
BOE currently holds about 840 billionGBPof public debt, mainly through stimulus measures after the outbreak and during the economic hardship. According to the new plan, BOE will expand the abbreviated balance sheet on November 1 to avoid conflict with the date when the government announced the revised fiscal plan.
BOE intends to recover about 80 billion a year through active sales and redemptionGBPTreasury bonds, representing about $10 billion in quarterly salesGBP。
According to BOE Tuesday’sannouncementthis quarter’s bond sales will exclude long-dated bonds and split only between short-dated and intermediate-dated bonds.
BOE estimates sales at a similar scale and frequency as previously announced, with all portions of previous delays to be incorporated into subsequent quarters. The date and size of the sale will be announced on October 20.
UK government bond yields closed at 4.31 percent on Tuesday, down nearly 1 percentage point from the peak of the BOE’s intervention last week.
Hours before the BOE announcement kicked off the QT, the Financial Times (FT) had reported that the central bank had decided to delay the reduction of its balance sheet, but the BOE soon announced that the report was in error.
On the other hand, BOE also reserves the space to suspend sales for possible market volatility again. The announcement stated that “it will pay close attention to the market situation and will include it in the sale of bonds when appropriate.”