Quantitative Ending | FT Alphaville

Quantitative Ending

Today is a rather big day for the UK gilt market.

It is the beginning of the end of the Bank of England’s quantitative easing; that is, the central bank’s buy-back of UK government bonds. QE, you’ll remember, was aimed (in part) at keeping gilt yields low, thereby stimulating the economy by further reducing funding costs.

From Gary Jenkins of Evolution Securities:

The Bank of England has now reached its £200bn QE target and yesterday’s purchase of £1.7bn gilts will be the last reverse gilt auction unless the MPC decides to increase the programme at next week’s meeting (or indeed at any subsequent meetings – no reason they cannot go for a wait and see approach and put QE on hold for a while).

That Tuesday reverse auction attracted an offer-to-cover ratio of 1.81 times, as the central bank bought £1.7bn of 25-year gilts — boosting its total gilt-purchases from circa £198.6 to that £200bn target.

Yields on 10-year gilts were down about 2bps to circa 3.85 per cent on Wednesday morning in London, which means the bonds are, so far, doing just fine without QE-support — even if they are, in the words of some commentators, resting on chemically-flammable bedding.

Since QE began on March 5 2009, however, yields have performed like this:

Related links:
An eye-catching quote – FT Alphaville
Missing from the MPC minutes – FT Alphaville
Quantitative Easing: An interim report – Charles Bean, Bank of England
UnQEasy drama – FT Alphaville