The Bank of England will soon announce that it is stopping the sale of long-term government bonds. This decision comes after a global sell-off in debt markets and could assist the Chancellor, John Healey.
Reduction in Bond Sales
The Bank of England, which had previously reduced the sale of long-term bonds, will announce its plan to accelerate the process of quantitative tightening on Thursday. This plan will be released alongside the new interest rate decision.
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The prices of 20 and 30-year bonds have reached their lowest level since 1998, and the yields on these bonds have hit their highest point. This situation is part of a global decline in government bonds due to rising inflationary pressures from the war in Iran and pressure on central banks to raise official interest rates.
Impact on Government Budget
Last year, the Bank of England reduced the sale of long-term bonds, and some analysts have predicted that this sale may be completely halted. According to a survey conducted by the Bank of England, investors expect that about 15 percent of bond sales in the next 12 months from September will be related to long-term maturities.
Halting the sale of long-term bonds could save the government £2.5 billion annually by the end of the decade. This move helps John Healey prepare for the first budget statement of the new Prime Minister, Andy Burnham, which will take place on October 28.
Between 2009 and 2021, the Bank of England purchased £875 billion in government bonds as part of its emergency support for the economy. The bank has not engaged in the repurchase of maturing bonds since February 2022 and has reduced its bond holdings by over £400 billion. Unlike the Federal Reserve and the European Central Bank, which allow their bonds to mature, the Bank of England is actively selling its bonds.
Some investors have called for a halt to bond sales, but Andrew Bailey, the Governor of the Bank of England, has defended this program, emphasizing that this approach allows for market intervention if needed in the future.
The Reform Party of England, led by Nigel Farage, has criticized the costs of the Bank of England's quantitative tightening program. A survey by the Bank of England in July showed that investors expect the central bank to reduce the pace of its bond portfolio reduction to £50 billion in the 12 months ending September 2027, while the current figure is £70 billion.
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