UK investors see 113 billion pounds of BoE bond sales by 2025

By David Milliken

LONDON (Reuters) – Bond market experts expect the Bank of England to sell 113 billion pounds ($148 billion) of government bonds over the next three years, on top of 150 billion maturing from its 875 billion pound stockpile, a BoE survey showed on Friday.

Britain’s central bank announced last month that it would begin to unwind its bond purchases for the first time since it launched quantitative easing in 2009, starting with an immediate end to the reinvestment of gilts which mature.

The central bank has said it will consider active bond sales once it has raised Bank Rate to 1%, which financial markets expect to take place after the BoE’s next meeting in May.

The BoE survey of 31 market participants, just before 28 billion pounds of its gilts were due to mature, showed a sharp increase in bond sale expectations since the last survey in late January.

The median expectation for active sales over the next 12 months is 35 billion pounds, rising to a cumulative 70 billion pounds by March 2024 and 113 billion pounds by March 2025.

Sales were expected to start just after the BoE’s Sept. 15 meeting, although a minority thought the sales could begin as soon as late June or July.

In January, markets expected no active sales over the next 12 months, 25 billion pounds of sales in the 12 months after and a cumulative 50 billion pounds within three years.

Governor Andrew Bailey has said he does not expect the gradual sales to have much impact on the economy or on yields, as the 440 billion pounds of purchases during the COVID-19 pandemic largely served to stabilise turbulent markets.

But with the BoE currently holding just over half the stock of British government bonds in issue, Bailey sees a reduction in gilt holdings as desirable if the central bank is to provide support in a future crisis.

The BoE will use interest rates as its main tool to control inflation, which it expects to hit a 30-year high of around 8% next month and potentially rise further.

($1 = 0.7613 pounds)

(Reporting by David Milliken, editing by Andy Bruce)