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MNI Gilt Week Ahead: How much of the market can the BOE buy?

  • This week’s gilt market open is likely to see a move to the upside after the Chancellor announced a reversal of the plan to cut the rate of income tax from 45% to 40% for those earning over GBP150,000. Overall this makes no real difference to the fiscal numbers but shows that the PM and Chancellor are at least willing to dial back some of their plan in the light of the clear opposition (from both the public and within the party).
  • S&P affirmed the UK at AA but changed the outlook to negative, which may limit the rally in gilts a little.
  • Given the recent market moves, there will be increased focus on this week’s gilt auctions – with a 40-year auction on Tuesday and a 10-year auction on Wednesday.
  • The Bank of England could potentially increase its share of the free float holdings of 20+ year gilts from 40.9% to 56.6% based on Friday’s closing prices. MNI analysis shows that if we assume the average takeup in the remaining operations are in line with the average seen so far, this would lead to the Bank owning around 45.8% of the free float.
For the full document including gilt auction previews see:GiltWeekAhead20221003.pdf

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