Is BoE gilts offload a 'selling gold at the bottom' moment?

MOVE over Quantitative Easing. Quantitative Tightening is the order of the day. Money printing is in reverse and balance sheet reduction — selling the government bonds bought during the QE era — is now a focus of the Bank of England.

- Christopher Mahon

Other central banks are treading gently. Selling bonds on this scale has never been done before. Nor has it been tried when markets have had to digest the ramifications of both high inflation and substantial rate hikes. Prices for bonds are today much lower (and yields higher) than when the central banks bought the same securities previously. So understandably, most central banks have been proceeding slowly.

But not the Bank of England. Of all the central banks, the Bank of England has been the most aggressive in terms of selling the bonds bought during the QE era. The process itself involves the Bank both allowing existing bond holdings to mature, and selling its bond holdings into the market. This is not unusual. But what is unusual is the pace and scale involved.

Adjusting for the size of the market, in the UK the net effect is equivalent to sales of about 7.4% of all outstanding government debt. This is around 70% faster than the US Fed and well over twice the pace of the European Central Bank. That’s a huge amount of what is effectively new bond issuance that the gilt market has had to digest.