Financial institute, Bank of England, faces mounting pressure to curb bond sales due to volatile market conditions

The Bank of England (BoE) is facing increasing calls to reassess and potentially slow down or even halt its quantitative tightening (QT) programme, following a recent bond market rout. The unusual approach of actively selling government debt to investors, known as active quantitative tightening, has come under scrutiny.

Interest rates on long-term sovereign debt have been on the rise across the globe, including in the US and much of Europe. This trend has extended to the UK, where the cost of long-term borrowing has soared to its highest level this century. The yield on 10-year UK government bonds has climbed to nine-month highs, while the yield on 30-year UK government bonds has jumped to its highest level since 1998.

These developments signal that markets are concerned about the UK's fiscal outlook. The sell-off in long-term debt, including UK government bonds, has added pressure on the BoE to reconsider its QT programme.

Influential economists and analysts, including those from DZ Privatbank, have expressed concerns about persistent inflation and cautious monetary policy adjustments based on the Monetary Policy Committee's recent votes. They argue that the BoE risks causing further disruption in the gilt market if it does not slow the pace of its bond sales.

Quilter Cheviot suggests that the BoE should think carefully about the composition of its gilt sales, particularly focusing on shorter-dated bonds. Julian Jessop, an independent economist, goes a step further, suggesting reducing the pace of QT more aggressively than the markets expect - say to £50 billion in the coming year.

Andrew Bailey, the BoE governor, has reassured that the decision to be taken in the next few weeks is an open one. He stated that investors are sensitive to the sale of longer-dated bonds, which have borne the brunt of recent volatility. A pause or slowdown in selling longer-dated bonds could help restore confidence and reduce the risk of further disruption in the gilt market.

The BoE has been an international outlier in actively selling its portfolio of gilts back into the bond market in a programme dubbed 'active quantitative tightening'. However, with the recent bond rout and the concerns raised by economists and analysts, it seems that the BoE will indeed reassess the pace of its QT programme later this month. The markets are expecting policymakers to slow the pace of QT from £100bn to £70bn over the next year.

As the BoE navigates this challenging economic landscape, it remains to be seen how it will respond to the calls for a slowdown or halt in its QT programme. The decision will undoubtedly have significant implications for the UK's bond market and broader economy.

Financial institute, Bank of England, faces mounting pressure to curb bond sales due to volatile market conditions