It’s been a tough day for the Bank of England. Not only were its walls barricaded by G20 protesters and scribbled upon distastefully – the BoE’s latest buyback appears to have floundered a little too.
As the results show, the bank accepted £3.4bn of offers having received £4.36bn in total — that’s a cover ratio of 1.25.
Marc Ostwald, strategist at Monument Securities comments as follows:
- How sublime! This time last week, we had a failed Gilt auction, this week we edge ever closer to a failed QE reverse auction, and there is as such a risk of an enormous squeeze in Gilts. The premiums relative to market prices were ever larger as the maturities lengthened, and the Bank’s holdings of 8.0% 2015 are now around 30% (including what is held for BoE Open Market Operations). Gilts are headed higher, but this is an increasingly false market, which should be a concern for everyone, even if they are ‘enjoying the ride’ at the moment.
And here’s the corresponding reaction of the long gilt future:
But at least the Debt Management Office’s auction of £3.5bn of 2015 went well, achieving a cover of 2.23. Of course, as RBC’s Richard McGuire points out to Bloomberg:
“There is appetite for issues that fall within the Bank of England’s quantitative easing zone,” said Richard McGuire, a London-based fixed-income strategist at Royal Bank of Canada. “This shows the Bank of England needs to be there to support sufficient investor appetite, given the poor supply picture.”
It is therefore Thursday’s 30-year gilt auction, which might find more difficulty attracting competitive bids. We’ll be watching.
Related links:
Gilt auction failure begins – FT Alphaville
Swinging gilts – FT Alphaville
JUMP Bankers! – FT Alphaville