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What happens if an APF gilt sales operation isn't filled?

BOE
  • Lots of market talk as to what happens if there is an uncovered BOE APF gilt sales auction - and whether the BOE would accept a big discount if there were not enough acceptable bids to clear the whole GBP580mln auction amount.
  • The answer is: there a minimum prices the BOE will accept, any unallocated sales proceeds are rolled over to future auctions, and the BOE also retains the right to cancel and re-schedule any sales operation to either later in the day or a future day before the publication of results - note that the latter has been used previously in terms of technical difficulties when the BOE was buying rather than selling gilts.
  • The following details are from BOE Market Notices:
    • "The Bank intends to set minimum levels for the bid prices / maximum yields it is willing to accept, as a backstop, in support of its objective not to disrupt the functioning of financial markets. This backstop will be set at a level such that it would not be expected to bind regularly, but would allow the Bank to respond to evidence of particularly weak demand within the auction by reducing the amount it supplies in those conditions."
    • "Any unallocated sales proceeds in an auction will be incorporated into the sales proceeds target for future auctions in order that the MPC’s target reduction in the stock of gilts will still be met."
    • "The Bank reserves the right to cancel an auction at any time before the results are published, at its sole discretion. If an auction is cancelled it may be re-scheduled to take place later the same day, or on a future date. "
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  • Lots of market talk as to what happens if there is an uncovered BOE APF gilt sales auction - and whether the BOE would accept a big discount if there were not enough acceptable bids to clear the whole GBP580mln auction amount.
  • The answer is: there a minimum prices the BOE will accept, any unallocated sales proceeds are rolled over to future auctions, and the BOE also retains the right to cancel and re-schedule any sales operation to either later in the day or a future day before the publication of results - note that the latter has been used previously in terms of technical difficulties when the BOE was buying rather than selling gilts.
  • The following details are from BOE Market Notices:
    • "The Bank intends to set minimum levels for the bid prices / maximum yields it is willing to accept, as a backstop, in support of its objective not to disrupt the functioning of financial markets. This backstop will be set at a level such that it would not be expected to bind regularly, but would allow the Bank to respond to evidence of particularly weak demand within the auction by reducing the amount it supplies in those conditions."
    • "Any unallocated sales proceeds in an auction will be incorporated into the sales proceeds target for future auctions in order that the MPC’s target reduction in the stock of gilts will still be met."
    • "The Bank reserves the right to cancel an auction at any time before the results are published, at its sole discretion. If an auction is cancelled it may be re-scheduled to take place later the same day, or on a future date. "