BoE Revises Upward Its Estimate of QT Impact on Gilt Yields

The Bank of England (BoE) has revised its estimate of the impact of quantitative tightening (QT) on gilt yields. According to Deputy Governor Dave Ramsden, QT has pushed up 10-year gilt yields by 20-30 basis points. This is an increase from the previous estimate of 15-25 basis points.

Ramsden emphasized that pinning down the precise contribution of QT to yield movements is still more art than science. However, he noted that QT accounts for between 6% and 9% of the total 350-basis-point rise in gilt yields since its inception in February 2022.

The BoE's QT program involves reducing its balance sheet by £70 billion over a year, down from an initial target of £100 billion. So far, active sales have accounted for £21 billion of this reduction, while the remaining amount has come from maturing bonds rolling off the balance sheet.

Ramsden also highlighted that QT is meant to be a 'backdrop' to monetary policy rather than the main event. The Bank Rate, which remains at 3.75%, remains the primary tool for steering economic conditions.