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"Temporary" holdings to be sold from 29 Nov - impact on curve unclear (1/2)

BOE
  • The Bank of England announced last night that from 29 November it would begin to sell its "temporary" holdings of long-dated and index-linked gilts.
  • As Hauser eluded to in his recent speech "the Bank’s sales will commence not at a fixed pace, but will be designed in a demand-led way that is responsive to prevailing market conditions."
  • It is unclear whether the reverse enquiry window will remain open indefinitely for bids from 29 November, or whether there will be daily (or less frequent) periods in which market participants can submit bids to the BOE. What is clear is that this is not on a pre-set schedule like the APF unwind (and is being treated as a completely different programme by the BOE).
  • The 29 November start date is earlier than expected, with expectations that long-dated gilts might not be sold until Q1-23.
  • The impact on the curve is uncertain. At face value it would seem to have a steepening effect on the curve. However, given that there is no rush for the Bank to sell its holdings if it doesn't receive acceptable bids, the impact may well be muted - and could potentially even support the long-end a little as there appears less urgency to get rid of the Bank's holdings completely.
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