October 05, 2022 12:25 GMT
The BOE has put out a statement to the market regarding the reserve spread in the long-date purchase operations:
- "The Bank’s allocation methodology is not based on absolute price or yield, or the identity of the seller. As set out from the start of the programme, because the operations are designed to act as a backstop the Bank sets a ‘reserve spread’ which is used to calculate a yield for each bond below which the Bank will not make purchases. This reserve spread is set as a spread (in basis points) to the market mid yield at the end of each auction."
- "The Bank allocates or rejects each offer (i.e. deciding which specific purchases are made in an auction) by comparing the spread between the yield it is offered and market mid-yields at the end of the auction, with the Bank’s reserve spread. Offers below the reserve spread are rejected."
- "As confirmed in the 3 October Market Notice, the reserve spread is reviewed ahead of each auction. In doing so the Bank takes into account a wide range of information on prevailing market conditions and the pattern of demand in its auctions."