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More 10s30s Flattening Today? (1/2)

GILTS
  • The Bank of England announced on Friday that it would change the parameters of its APF sales programme (i.e. QT).
  • In Q4-24, the BOE aimed to sell equally across the three maturity buckets (3-7 years, 7-20 years and 20+ years) in cash terms measured in sales proceeds - which resulting in setting a size of GBP670mln with an equal number of operations in Q4-24.
  • The MNI Markets team had noted that this was sub-optimal - mainly because it meant that there long-dated gilts had a much larger duration and the market was showing some signs of fragility by having to digest so much at the long-end.
  • This also meant that the Bank's balance sheet reduction was more focused on the long-end - as it holds gilts on its balance sheet at their initial purchase price (it doesn't mark to market), and with the gilts being higher duration they reduced the size of the balance sheet faster (by effectively locking in large losses for the BOE - which was then indemnified by the Treasury and hence would have the perverse impact of raising required DMO gilt issuance).
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