Bank of England Halts Sale of Long-Dated Debt After Market Ruptures

The Bank of England has temporarily halted the sale of long-dated bonds under its quantitative tightening program, bowing to market pressure after a surge in gilt yields ignited by Donald Trump’s tariffs.

The UK central bank said on Thursday that it will now sell £750 million worth of short-dated debt on April 14 rather than the originally scheduled auction of £600 million longer maturity gilts in “light of recent market volatility.”

A BOE spokesperson said it had taken the decision as a “precautionary” measure. It plans to sell the long-term debt in the following quarter.

The sudden change to QT may signal a shift in the BOE’s appetite to push ahead with the bond sales in a turbulent global market environment. Analysts warned that it could mark a step toward it pausing the plan to unwind the balance sheet of bonds built up during over a decade of quantitative easing, originally intended to counteract the fallout from the global financial crisis and subsequently the Covid pandemic. 

Long-dated UK bonds were hammered in the volatility that ripped through markets following the US President’s announcements of reciprocal tariffs on April 2. The 30-year yield soared 60 basis points to 5.66% in a matter of days, the highest since 1998. Longer-term UK debt was particularly badly hit in the market volatility compared with other European government bonds.

The 30-year gilt posted sharp gains on Thursday, the morning after Trump paused many of his tariffs for 90 days. The rise extended slightly after the BOE’s announcement and the yield was around 16 basis points lower on the day at 5.42% at 12.30 p.m. UK time. Still, yields and volatility remain high.

“It shows that the lifespan of QT could be very short if moves are as unhealthy as we have seen in last couple of sessions,” said Pooja Kumra, senior rates strategist at TD Securities. The decision “clearly suggests that we are heading closer to the period when we could see QT freeze, especially for long-end.”

The BOE plans to reduce its stock of gilts by £100 billion in the 12 months from October 2024, including £13 billion of active sales.

The central bank has previously insisted that QT has only a small impact on gilt yields. However, this week’s surge in long-dated debt evoked bad memories of a similar jump in the wake of former Prime Minister Liz Truss’s mini-Budget. Some analysts believe the impact of QT on gilt yields is much higher.

Sanjay Raja, chief UK economist at Deutsche Bank, said the BOE decision is a “clear reaction to the market moves we’ve seen – particularly in the long end of the curve.”

While he played down the prospect of the BOE ending its sales altogether, Raja said “this will certainly be a point of consideration when it looks at the next QT round.”

With assistance from Philip Aldrick.

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