Bank of England to Double Long-Dated Gilt Buy-Backs, QE Policy to See an ‘Orderly End’ in Mid-October

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Bank of England to Double Long-Dated Gilt Buy-Backs, QE Policy to See an ‘Orderly End’ in Mid-October

After the British pound sterling tapped an all-time low against the U.S. dollar on September 26, the Bank of England (BOE) said it would halt its monetary tightening policy and start buying long-dated bonds again. Approximately two weeks later, the BOE detailed on Monday that it was doubling the size of its debt buy-backs by purchasing large sums of gilt-edged securities (bonds).

BOE to Double Bond Purchases, UK Central Bank Adds New Temporary and Permanent Repo Programs to Enhance Liquidity

16 days ago, the British pound sterling reached a lifetime low against the greenback and the central bank of England decided to step into the fray and bolster the U.K.’s economy with stimulus programs. On September 28, News reported that the Bank of England decided to stop monetary tightening and it said it would start to purchase long-dated gilts, otherwise known as bonds.

Two weeks later, the BOE changed its mind and decided to double its efforts in terms of purchasing gilt-edged securities. On Monday, the BOE announced it would increase bond purchasing and told the public that on October 14, the central bank would reveal measures that will bring an “orderly end” to the latest quantitive easing practices.

Japanese Bonds: Worthless without the BoJ propping them up with printed Yen.

Gilts: Worthless without the BoE stepping in with printed Pounds.

Italian bonds: Worthless without the ECB backstopping with printed Euros.

Global Fiats: Going to zero.

— Stack Hodler (@stackhodler) October 9, 2022

“To date, the Bank has carried out 8 daily auctions, offering to buy up to £40 billion, and has made around £5 billion of bond purchases,” the BOE reported on Monday. “The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5 billion in each auction.” In addition to the long-term gilt purchases, BOE created a new repo facility in order to help with liquidity issues. The bank has dubbed the repo as the BOE’s “Temporary Expanded Collateral Repo Facility (TECRF).”

“Under these operations, the [BOE] will accept collateral eligible under the Sterling Monetary Framework (SMF), including index-linked gilts, and also a wider range of collateral than normally eligible under the SMF, such as corporate bond collateral,” the central bank’s announcement details. The bank further said it was planning to open up a permanent, long-term repo operation as well, and it launched a short-term repo last week.


— zerohedge (@zerohedge) October 7, 2022

“[The] permanent facility will provide additional liquidity to banks against SMF eligible collateral, including index-linked gilts, and so support their lending to LDI counterparties,” the BOE detailed on Monday. “Liquidity is also available through the Bank’s new permanent Short Term Repo facility, launched last week, which offers an unlimited quantity of reserves at Bank Rate each Thursday,” the central bank added.

Meanwhile, the British pound sterling (GBP) has seen some improvement against the U.S. dollar, but it is still down 0.13% during the past 24 hours and 2.56% during the last five days. Year-to-date statistics show the GBP has lost 18.23% against the U.S. dollar. The latest announcement stemming from the BOE showcases the central bank’s persistence toward intervening in financial markets “on whatever scale necessary” in order to “restore orderly market conditions.”

Furthermore, amid the BOE’s latest decision to double gilt purchases, the U.K.’s finance minister Kwasi Kwarteng plans to release the medium-term fiscal plan three weeks before the scheduled date, according to His Majesty’s Treasury (HM Treasury).

What do you think about the BOE doubling the size of gilt purchases in order to bolster the U.K. economy? Let us know what you think about this subject in the comments section below.

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