Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The Bank of England has dropped plans to sell long-dated bonds next week in response to recent market turmoil and will instead sell shorter maturity gilts in a move that will ease pressure on the UK’s long-term borrowing costs.
The announcement follows a sharp sell-off in the price of UK sovereign bonds with 10- and 30-year maturities in the wake of US President Donald Trump’s jarring imposition of global tariffs.
The BoE said on Thursday it made the decision to sell only short-dated bonds at its April 14 auction “in light of recent market volatility”, adding that it “intends to reschedule the long-maturity auction to the following quarter”.
The central bank added that it planned to keep reducing the bonds it held in its asset purchase facility “as evenly as possible across maturity sectors”.
The BoE bought large amounts of gilts through the facility during previous moments of market stress. It has been selling off the assets since 2022 in a process known as quantitative tightening (QT).
The unusual shift in the BoE’s QT plan followed a jump in long-term borrowing costs for the UK government in response to the trade war unleashed by Trump last week.
“Given recent market volatility, we made a precautionary operational decision to switch the ordering of our QT operations,” said the BoE. “We are not changing the size or pace of the wider QT programme.”
Yields on 30-year gilts climbed 0.28 percentage points to just over 5.63 per cent in the early afternoon of Wednesday, exceeding an earlier multi-decade high set in January to trade at levels last seen in 1998. The move came before Trump revealed a 90-day pause on aggressive tariffs he had imposed on US trading partners above his global 10 per cent baseline levy. The US president has retained punitive tariffs on China as well as the baseline.
On Thursday, yields on 30-year gilts fell back to 5.46 per cent, while the yield on the 10-year gilt retreated 0.07 percentage points to 4.7 per cent, as global bonds rallied.
While gilt yields have mainly been driven by the US Treasury market in recent days, some investors worry about the amount of debt the UK will issue this year, and analysts welcomed the BoE’s decision to shorten the maturity of its debt sales.
Peter Schaffrik, chief European macro strategist at RBC Capital Markets, said the move should not be billed as “an emergency measure”, but rather as “a sensible reaction to the volatility that we’ve seen”.
“It seems opportune not to add any supply to the part of the curve that’s a bit stressed anyway,” he added.
Source link
