Bank of England Halts Long-Dated Gilt Sales, Unveils QE Unwind Plan
By David Milliken and Andy Bruce
Bank of England's Gilt Sale Strategy and Market Impact
LONDON, Sept 17 (Reuters) - The Bank of England paused sales of British government bonds for the next six months and halted sales of long-dated gilts entirely as it set out a multi-year programme to offload most of its remaining £488 billion of gilts by 2034.
The BoE's decision, announced alongside an expected hold in interest rates, comes days after British 30-year borrowing costs hit their highest since 1998, part of a global bond selloff.
The market turmoil has reignited criticism that the BoE's bond sale policy crystallises losses for the central bank that are ultimately underwritten by taxpayers.
Clarity on Quantitative Tightening Policy
"Today we provided clarity over the future of our quantitative tightening policy," Governor Andrew Bailey said.
"The Monetary Policy Committee and Bank have decided to withhold a substantial part of the stock of gilts held for monetary policy purposes from sale while the remainder will be unwound over the next eight years," he added in a statement.
Bailey has long stressed his desire to reduce the BoE's gilt holdings to a minimum and the central bank argues that changing the pace of gilt sales mostly affects the timing of losses to the government rather than the total size.
Market Conditions and Policy Adjustments
Speaking later to broadcasters, Bailey denied the change was a response to deteriorating market conditions and said the central bank had begun working privately on a revamp of its bond sale plans before the outbreak of the U.S.-Iran war in February.
Bond Market Reaction
Immediate Yield Movements
BOND YIELDS FALL AFTER BOE ANNOUNCEMENT
Longer-dated British government bond prices rallied sharply after the announcement, with 30-year yields on course for their biggest one-day gain since April, pushing yields down to a three-week low.
"These changes should be seen as gilt positive, in particular for long-end maturities," said Matthew Amis, investment director for rates management at Aberdeen Investment.
Background on Quantitative Easing and Tightening
The BoE bought £895 billion ($1.2 trillion) of sterling debt — almost all government bonds — between 2009 and 2021 through successive rounds of quantitative easing aimed at boosting the economy and keeping down longer-term interest rates.
In February 2022 it stopped reinvesting the proceeds of bonds that matured and in September 2022 it started selling gilts to increase the total pace of so-called quantitative tightening to £100 billion a year.
Last September the BoE's Monetary Policy Committee voted to slow the pace to £70 billion and on Thursday the MPC voted 9-0 in favour of the new plan.
Details of the New Gilt Unwind Plan
Breakdown of Remaining Gilt Holdings
Under the new plan, the BoE will reduce to zero the gilts it holds for monetary policy purposes. Of the £488 billion of gilts remaining, £120 billion of gilts maturing in 2049 or later will be kept on the BoE's books permanently to back its banknotes.
The £222 billion of gilts due to mature by 2034 will be held to maturity, while the remaining £146 billion of bonds with maturities between 2035 and 2049 will be sold.
Annual Sales and Unwind Pace
That equates to £20 billion a year of sales and an average annual unwind of £46 billion including maturing bonds — slower than over the past 12 months but broadly in line with what investors polled by the BoE in July had forecast for 2026/27.
Changes to Gilt Auction Process
Temporary Pause and Potential Shift
BOE GILT AUCTIONS PAUSED UNTIL APRIL, MAY STOP ENTIRELY
The BoE will also pause all sales until April while it consults with the government on selling gilts direct to the finance ministry's Debt Management Office, at market prices, rather than holding its own auctions.
This shift would potentially help avoid getting bad prices at auctions for small residual amounts of gilt.
Comparison with Other Central Banks
The BoE has been unique among major central banks in conducting outright sales of government debt, rather than waiting for its holdings to mature — a reflection of gilts' longer average maturity than debt of other countries.
Impact of Quantitative Tightening on Yields
The BoE reckons QT has pushed up gilt yields by around a quarter of a percentage point – something it views as small in the context of the surge in bond yields in recent years.
But some analysts reckon the impact is nearer three quarters of a percentage point for 30-year gilt yields – more than the current difference between British and U.S. 30-year government borrowing costs.
(Reporting by David Milliken; Editing by Catherine Evans)
