Is this the end of the beginning for Quantitative Easing?

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 Hogg

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 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.





20 thoughts on “Is this the end of the beginning for Quantitative Easing?

    • Hi Forbin

      There indeed some similarities here but over time the real issues seem likely to come from the Corporate Bond holdings of the Bank of England and the ECB. This morning there has been more bad news from Toshiba, what if several companies go like that over here? No doubt the Bank of Japan will be parking its Toshiba holdings at an equivalent of Fukushima.

  1. Can’t really get my head around why you would raise rates and continue with QE. It seems crazy to me but on the other hand loads of what central banks do seems crazy to me!

    • I can’t get my head around why they even started QE Bez…..all it seems to have done is to take a recession and turn it into a grinding depression.

      • It was only ever about refinancing the banks, not the economy, although the Establishment will tell you that via refinancing the banks the economy would take of as banks start lending again.

        Problem with that theory is it ignores the reality of non performing loans (NPL’s) which have to be shored up first. These NPL’s have turned out to be a black hole sucking in more money than the CB’s of the world can create even in this era of electronic money.

  2. Hi Shaun thanks for another great posting.
    I know I am like a broken record but there is no way out we have borrowed gratuitously.
    Rates will rise they will print to infinity to control those rates because the Ponzi scheme will crash if they don’t because defaults will be widespread.
    The economy is crumbling hence Trump Le Pen Wilders Farage …..Sturgeon etc these people are false prophets but we are heading on a dangerous downward spiral economically and politically.

    • Hi Private Fraser

      I have considered before the possibility that interest-rate rises will be combined with QE ( as politicians will not face up to higher bond yields because of the debt costs). The US is ploughing that potential furrow first.

      As for the UK wasn’t it Paul C who posted that he thought debt costs would get out of control if Gilt yields rose above 3%?

      • Shaun, thanks for remembering. 3% seems a lofty number when we are still enjoying “emergency” rates from the year 2007. The funny thing is that you cant use the phrase emergency for 10 years can you?

  3. Shaun,
    If we follow Charlotte’s advice and ‘let them run off’…isn’t that a technical default?Or am I missing something

    • Hi Dutch

      No as the UK would issue more Gilts as normal and investors would buy them as still happens now as the Bank of England does not buy new issues. However it would not be making future purchases so Gilt yields would rise overall.

  4. The thing about QE is that it has been a global phenomenon. Even when the Fed stopped other central banks carried on rolling the presses. I think this is one of the reasons why the equity markets haven’t reacted to the Fed’s raises with a serious sell-off Even the bond market moves aren’t as big as you might expect given the state the America’s debt. If all the taps get turned off at once that’s when we’ll see ructions.

  5. Yup, Shaun. They are all saying the same thing. QE cannot end since that is a tightening. No tightening is possible because that might cause assets to falter, and even fall. Once assets appear to fall then the whole ponzi can potentially be seen in plain sight. Hence QE will continue, IR’s will never be increased in the EEA. They will probably rename QE as term funding or some other weasel wording so that the dumb MSM media perceive it as “development” and “progression”.

    We just need that black swan we have missed for almost 10 years now, I thought they always floated by from time to time…

    🙂 Paul

      • Well yes, I do seek a sustainable resolution. Since the inequity of the status quo is immoral. If you know that human resources are being wasted, that people are suffering economically en masse without a good reason. Why would you not change things?

        • If the Ponzi is brought into plain sight then imo the collapse that would follow could not be recovered from and the sustainable resolution which you seek would be one of massive population “downsizing” via non existent health care even at the most basic
          level and those left would be using horse drawn carts, growing their own food, collecting firewood and coal slag to burn in an open fire for heat, making their own clothes, moving around on deteriorating roads, home schooling their children and could look forward to a life expectancy of about 40 years with any one suffering an illness being left to recover on their own or dying.

          I don’t share yours or therawbuzzin’s enthusiasm for such a life,if it can be called that, especially therawbuszzn as I believe his wife has a chronic illness which would no longer be treated after such a reset.

  6. So….

    ”The Bank of England’s new deputy governor of markets and banking, Charlotte Hogg, has resigned after less than five week in her post,”

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