Yahoo Finance Pound drops as Bank of England disputes report it will delay bond sales
The pound has lost its gains as the Bank of England has disputed reports it might hold off on winding down its holdings of UK gilts is order to provide respite for markets.
The Financial Times reported that BoE officials had made the decision after assessing markets as being “very distressed”.
The Bank of England waited the entire morning to come out and say the report it plans to delay the sale of some of its UK government bonds is ‘inaccurate’, which has knocked bond prices lower.
Well..a fairly concise statement from Bank of England on reports it was going to delay bond selling. "This morning's FT report that the BoE has decided to delay MPC gilt sales ('QT') is inaccurate."
What will markets make of that?!— Ashley Armstrong (@AArmstrong_says) October 18, 2022
The central bank had scheduled to start the sales on October 31 under a so-called quantitative tightening programme.
Citing potential risks to the stability of the financial system, the BoE had already delayed the start of quantitative tightening, which had originally been due to start on 6 October.
However, the Bank of England does not actually specify what’s "inaccurate" in the FT’s report, leaving some to call it a non-denial denial.
Bank of England:
"This morning's FT report that the BoE has decided to delay MPC gilt sales ('QT') is inaccurate."
Collectors item for lovers of non-denial denials?— Andy Bruce (@BruceReuters) October 18, 2022
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Sterling went to highs of $1.1410 against the dollar, after the FT broke the story on Tuesday morning before falling back into negative territory.
The central bank had said it intended to complete around £80m of active sales in the next year out of a total the £838bn of gilts it holds. While not a huge figure in issuance terms, analysts had warned about the signal it would give to markets already struggling with a lack of investor confidence and a deterioration in liquidity.
The central bank has previously said it would keep a close eye on market conditions but that there would be a "high bar" for any delays to its sales plans.
Another postponement would be the latest sign the central bank is concerned by the state of bond market following the government’s botched mini-budget.
Although 30-year gilt yields have fallen from their recent high of more than 5% to 4.32% on Monday, they remain well above the 3.75% reached before the mini-budget.
Famous last words but today could well be the first calm-ish day in UK govt bond markets for a while. Most maturities have opened in a similar place to where they closed last night. Yesterday's harsh fiscal medicine seems to have had some impact. Here's the 30yr yield: pic.twitter.com/ldf7lCpaub
— Ed Conway (@EdConwaySky) October 18, 2022
Read more: Jeremy Hunt bins disastrous mini-budget and announces changes to energy bill support
Delaying the sale of bonds would not need a vote from the bank’s Monetary Policy Committee.
Three days into the job, Jeremy Hunt has pretty much gutted prime minister Liz Truss' entire economic plan that propelled her to lead the government.
The new chancellor reversed two thirds of the mini-budget tax cuts and announced the government will also have to make spending cuts to get debt relative to GDP falling.
The UK’s Debt Management Office is auctioning a long-dated bond today, which will be a test of market confidence.
Watch: UK finance minister Hunt reverses tax plan
