By David Milliken
LONDON (Reuters) – The Bank of England missed a 650 million pound ($790 million) bond sales target by 29 million pounds on Thursday, the first time it has failed to get enough demand at one of the auctions that make up its new quantitative tightening (QT) programme.
The BoE is the only major central bank to be actively selling government bonds to investors in addition to allowing quantitative easing (QE) holdings to passively mature, and its sales programme has drawn international attention.
The bank’s QE gilt holdings now stand at 825 billion pounds, down by 50 billion pounds from their peak in December 2021.
The BoE started QT sales in November after a delay caused by the turmoil from the mini-budget, and sold 6 billion pounds of short- and medium-dated gilts in November and December.
In the first three months of 2023 it plans to sell 9.75 billion pounds of short-, medium- and long-dated gilts.
Overall, the central bank is seeking to reduce its gilt holdings by 80 billion pounds over 12 months, split roughly equally between outright sales and maturing gilts.
At Thursday’s auction to sell gilts with a maturity of three to seven years, the BoE received bids totalling 713 million pounds but accepted only 621 million pounds’ worth, less than the 650 million pounds it aimed to sell.
“The Bank has exercised its discretion not to allocate Stg 28.8 mln of bids in today’s operation,” the BoE said. It added that the missed sales would be made up at future auctions.
Earlier on Thursday, before the auction, BoE Governor Andrew Bailey told a panel of lawmakers that he had not seen any evidence of market disturbance from the central bank’s QT sales.
Asked why the BoE did not sell the full volume of gilts, a central bank spokesperson declined to give a specific reason but highlighted the published rules governing the sales process.
Under the terms of the its QT auction programme, the BoE has the option of selling less than the amount planned at a particular auction if it receives unattractively low bids.
Short-dated British government bonds fell after the auction, pushing the premium on five-year gilts versus German bonds 7 basis points higher on the day.
($1 = 0.8232 pounds)
(This story has been corrected to change year to 2021 from 2020 in paragraph 3)
(Reporting by David Milliken; Editing by William Schomberg and Jan Harvey)
