The Daily Telegraph

Bank delays bond sales by a day to avoid Hunt clash

Threadneed­le Street plans to initially sell short-dated government debt to avoid a repeat of market turmoil

- By Tim Wallace

THE Bank of England is delaying the start of a major sale of government debt by one day to prevent a clash with the announceme­nt of Jeremy Hunt’s fiscal plan.

Officials have announced that they will begin offloading bonds bought through years of emergency quantitati­ve easing (QE) on Nov 1.

The Bank previously said it would start this process on Oct 31 – when Mr Hunt, the new Chancellor, now intends to unveil his plan to bring the deficit under control.

Threadneed­le Street also said it will initially only sell short-dated government debt of the kind not widely held by pension funds, in order to prevent a repeat of market turmoil that drove some retirement schemes to the brink in the wake of the mini-budget.

In an announceme­nt released after markets closed yesterday, the Bank said: “In light of the Government’s fiscal announceme­nt now scheduled for Oct 31 2022, the first gilt sale operation will now take place on Nov 1 2022.”

It added that initial sales “will be distribute­d evenly across the short and medium maturity sectors only”.

It marks a significan­t shift from the initial plan to sell the bonds evenly across different maturities, but allows the Bank to crack on with its plan of selling £40bn of bonds over the next year in a decisive step to shrink its balance sheet.

QE was used to prop up the economy during the financial crisis and Covid by using billions of pounds of newly created money to buy government debt.

The support came to an end last December, and since March the Bank has allowed bonds to mature without reinvestin­g the proceeds to buy new ones. This process has already allowed the Bank’s QE balance sheet to shrink from a peak of £895bn at the end of last year to just under £838bn of gilts and £18bn of corporate bonds.

A combinatio­n of maturing gilts and active sales is expected to reduce the total by around another £80bn over the next 12 months.

The sale process was initially intended to start at the end of last month, but the Bank was forced to postpone it as part of efforts to calm markets after the mini-budget.

Sir Jon Cunliffe, the Bank’s deputy governor for financial stability, told MPS that the subsequent pensions squeeze led to the five largest daily moves in the 30-year inflation-linked gilt market

since records began in 2000.

But he said that officials’ decision to buy bonds to give liability-driven investment (LDI) funds time to stabilise their positions appears to have worked.

In a letter to the Treasury select committee, Sir Jon said: “In aggregate, market intelligen­ce suggests that LDI funds have raised tens of billion pounds in capital and made many billion pounds of gilt sales, both of which will reduce their leverage.

“We know that the majority of the Bank’s gilt purchases were from LDI managers. As a result of these actions, LDI funds have reported to the Bank that they have enough capital to withstand much larger increases in yields than before.”

It comes as the Government successful­ly borrowed £2.5bn with a bond maturing in 2051, with an interest rate of below 4.5pc.

Investors offered more than £5bn for the debt, indicating they appear willing to back long-term UK borrowing despite the turmoil of recent weeks.

Newspapers in English

Newspapers from United Kingdom