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What bucket sizes could the BOE use for active gilt sales?

  • The Bank of England confirmed in a statement at 18:00BST yesterday evening that it would commence active gilt sales on 1 November.
  • The prior official guidance from the Bank (announced at the same time as the temporary purchases were launched) had been that gilt sales would begin the W/C 31 October.
  • Under the original plans we would have seen three operations each fortnight with GBP580mln of sales of each of shorts (3-7 year), mediums (7-20 year) and longs (20+ years).
  • The Bank has confirmed that there will be no sales of long-dated gilts in Q4-22.
  • It stated that sales would be "a similar size and frequency as had been previously announced, with any shortfall as a result of the earlier postponement relative to its previous sales plan incorporated into sales in subsequent quarters."
  • To us this reads as though the bucket size will be between the originally-proposed GBP580mln but below GBP870mln.
  • Based on yesterday's closing prices and the average discount to the initial purchase price in both the short-dated and medium-dated buckets, GBP580mln buckets for 24 operations (i.e. a whole year) would see the Bank's balance sheet fall by GBP35bln. This is only slightly smaller than the GBP40-45bln total reduction in the balance sheet set out by the MPC through active gilt sales.
  • The MNI Markets team would expect that given the communication surrounding similar sizes and catch up in subsequent quarters, that bucket sizes will be set between GBP580mln-750mln (with the latter consistent with a GBP45bln reduction in the balance sheet through active gilt sales).
  • The BOE will announce the full details of this quarter's sales tomorrow at 18:00BST.

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