Today sees the Bank of England reach a threshold and but not yet a rubicon. This is because of this which it announced on last month.
As set out in the MPC’s statement of 2 February, the MPC has agreed to make £11.6bn of gilt purchases, financed by central bank reserves, to reinvest the cash flows associated with the maturity on 22 January 2017 of a gilt owned by the Asset Purchase Facility (APF).
This is an Operation Twist style manoeuvre where a Gilt matures and the Bank of England chooses to roll it forwards. Sometimes it does this a long way forwards as you see once a week a share of the funds have been put in what are called ultra-long Gilts which go out as far as 2068 ( of which it holds £1.54 billion). Creating an issue for our grandchildren and maybe great-grandchildren. The details are shown below.
The Bank will continue, normally, to conduct three auctions a week: gilts with a residual maturity of 3-7 years will be purchased on Mondays; of over 15 years on Tuesdays; and of 7-15 years on Wednesdays. The Bank intends to purchase evenly across the three gilt maturity sectors. The size of auctions will initially be £775mn for each maturity sector.
There was a time when £775 million seemed a lot of money but in central banking terms these days that is plainly no longer so. This should have finished last Wednesday but the Bank of England chose not to act on that day, maybe it did not want to let go! But more seriously it avoids days of known political importance as a rule.
So a threshold has been reached but the Bank of England will be able to announce something on Thursday as last week another Gilt matured and some £6.1 billion of that will be able to be rolled forwards. So no doubt it will be time for Operation Twist to wake itself after only a few days of being asleep to start again!
Charlotte should logically be voting against any further Operation Twist style move if this exchange with the Treasury Select Committee was any guide.
Andrew Tyrie ” On balance do you think we would be better off unwinding it or letting it run off?”
Charlotte Hogg ” I don’t see the distinction between the two to be honest”
So it does not do any good either? I pointed this out on the first of this month.
If Charlotte actually believes what she says then I look forwards to her voting against any more QE which must be pointless as apparently Gilt prices and yields would be unaffected if it stopped.
As to her own position people are more worried about her dissembling that her apparent lack of competence if this from Deborah Orr in the Guardian is any guide.
The trouble is that few people are likely to believe that not mentioning her brother’s job was an oversight. Even if they do, her judgment is still in question.
This bit does however mine a theme we have discussed on here many times.
Clearly, people run the risk of feeling over-entitled. They believe strongly in rules, but develop a belief that they are the people who make the rules, not the people who follow them……..Privileged people also run the risk of mistakenly believing that what’s good for them is good for everybody…….Finally, of course, privileged people assume, often rightly, that no one is going to hold them to account.
Sadly however the article seems completely unaware of the performance of Charlotte when questioned about monetary policy.
Hogg is clearly regarded as tremendously bright and capable.
More problems for the UK establishment
If you are intervening in so many areas then the need for honesty confidence and trust rises and yet we are also in an era where more issues are emerging. From the Wall Street Journal.
On average, between April 2011 and December 2016, U.K. government-bond futures correctly anticipated the rise or fall that ultimately happened when economic data were published, according to an analysis prepared for The Wall Street Journal by Alexander Kurov, associate professor of finance at West Virginia University.
Of course bond markets move on other days but there is a particular concern on these days because of this.
“The more prerelease access you have, the more likely it is that these things are going to be leaked,” said Hetan Shah, executive director of the Royal Statistical Society, the U.K.’s professional body for statisticians that has campaigned for several years to end such access.
At 9:30 am the day before release quite a large number of people ( 118 on the labour market report) get the numbers according to the WSJ.
Corporate Bond QE
This will continue but is of a much smaller size as there is only £2 billion left out of a total of £10 billion.. Regular readers will recall that I pointed out when it began that the Bank of England would struggle to mount any operation on a large scale because UK corporates issue a substantial proportion of their debt in Euros and US Dollars because they are often international businesses. This has led the Bank of England on this road as I pointed out in early November.
The Bank of England is boosting the UK economy by buying the corporate bonds of Total and Maersk
#QE Oh hang on….
I was told they were back buying Maersk bonds last week. Also there is the issue of subsidising larger businesses who can issue corporate bonds versus ones which are too small to be able to afford the costs. That is awkward when you are claiming you are boosting the economy.
It too is in a zone where ch-ch-changes are ahead. I have written several times already explaining that with inflation pretty much on target and economic growth having improved its rate of expansion of its balance sheet looks far to high even at the 60 billion Euros a month due in April. But the issue was highlighted by this which was on the newswires last week. From the Financial Times.
He warns investors not to rule out that the ECB could raise rates while it is still in the process of tapering its stimulus spending.
Well of course it could! Indeed the Bank of England has suggested it would raise interest-rates towards 2% before it started to reverse its own QE purchases. But the confusion around is highlighted by this seemingly being an issue.
There is a fair bit to consider at this time when the central bankers face the issue of stopping their stimulus policies. The Federal Reserve of the United States has signalled it will raise interest-rates for a third time in this phase later this week. But the Bank of England and ECB have not even entered the foothills and are still easing. If we move on from policy plainly being inappropriate we face the issue of what will bond markets do when the largest buyers disappear? Well we are getting hints as this from the twitter feed of Bond Vigilantes suggests.
10 year Swiss Government bonds offer a positive yield again, having traded in negative territory for almost 18 months.
Something of a shift has already taken place in the US with its ten-year Treasury Note yield being at 2.56% but with the ten-year Gilt at a mere 1.21% there is quite gap these days. Real yields are getting ever more negative as inflation moves ahead. From the BBC.
SSE has become the latest “big six” energy supplier to raise its prices.
It said average electricity prices would rise by 14.9% from 28 April for 2.8 million customers. However, it will keep its gas prices unchanged.