BoE QT Overhaul Eases Long-End Risks, Supports Pound

The Bank of England's decision to leave interest rates unchanged has been met with expectations that a hike is likely in November, as most of the majority voting bloc see tightening as needed. According to MUFG's Derek Halpenny, this signals that a rate increase could be on the horizon.

The surprise element came from the Bank's overhaul of its quantitative tightening (QT) program, which includes pausing sales, permanent holdings of long Gilts, and structured sales to the Debt Management Office (DMO). This move eases long-end yield risks and is seen as modestly Pound positive.

The QT changes involve selling GBP 146bn worth of Gilts maturing between 2035 and 2049 at a pace of GBP 20bn per year. However, instead of being sold directly to the market via auctions, these bonds will be sold directly to the government via the DMO.

This change has had an impact on the Gilt market, with the 30-year Gilt falling by 12bps yesterday.