BoE Expected to Reduce Bond Portfolio by £50 Billion in Next QT Phase
Bank of England's Quantitative Tightening Outlook
Investor Expectations for Bond Portfolio Reduction
LONDON, July 31 (Reuters) - Investors expect the Bank of England to slow the pace at which it reduces its bond portfolio to £50 billion ($67 billion) in the 12 months to the end of September 2027 from £70 billion in the current 12-month period, a Bank of England survey showed.
The result published on Friday was unchanged from the BoE's previous Market Participants Survey in June.
Background: Quantitative Easing and Unwinding
BoE's Bond Purchases Since 2009
The BoE bought £875 billion of British government bonds between 2009 and 2021 as part of its quantitative easing programme to support the economy. It began unwinding the stockpile in 2022 through a mix of sales and not reinvesting the proceeds of maturing gilts.
Current Debt Stock and Future Projections
The stock of debt is on course to fall to £488 billion in September when the BoE's Monetary Policy Committee will hold an annual vote on the pace of quantitative tightening.
Breakdown of Expected Gilt Sales
Investor Predictions by Maturity
Asked about the likely split of sales in the next period, investors told the BoE that they expected 43.3% to be made up of gilts with a 3-7 year maturity, 41.1% to be of 7-20 years maturity and 15.6% to be of longer maturity.
Impact of Quantitative Tightening on Bond Markets
Effect on Term Premia
On Thursday, the BoE said it estimated QT had contributed 20-30 basis points to a 200 basis point rise in term premia on British government bonds since 2022, around 5 bps more than it estimated a year ago.
Exchange Rate Reference
($1 = 0.7439 pounds)
(Reporting by David MillikenEditing by William Schomberg)
