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BoE will start selling bonds on November 1, but no longer maturity

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  • Bond sales will resume on November 1
  • Long-term bonds won’t be sold this year
  • BoE delays ‘quantitative tightening’ due to volatility
  • BoE’s Cunliffe warns markets could be shaky in coming weeks

LONDON, October 18 (Reuters) – The Bank of England said it will start selling some of its huge stock of British government bonds from 1 November, but won’t sell any of the long-term gold seen recently this year. Storm in the UK government bond market.

The BoE said it has delayed the start date of its so-called quantitative tightening program by one day from its previous schedule to avoid coinciding with the government’s fiscal statement on October 31.

The central bank is looking to reduce the £838bn ($948bn) government bond it acquired in tackling more than a decade of crisis, from the global financial crisis to the coronavirus pandemic and beyond.

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The BoE said sales in 2022 will be in short- and medium-term sectors, not bonds with maturities longer than 20 years. They experienced the biggest sales in the recent market turmoil caused by the government’s now-abandoned tax cut mini-budget.

Last month, the BoE tried to stop the bond market disruption from hurting pension funds by launching an emergency round of long-term debt-buying and delaying “quantitative tightening” (QT) sales by almost a month.

These purchases ended on Friday last week.

Analysts at consultancy Evercore said the plan looks “strong” given the still volatile market conditions.

“We assess that the bank considers it necessary to move forward with a significant amount of QT to maintain its independence and credibility amid Britain’s financial misfortunes,” they said.

BoE officials stressed that the bond purchases were not aimed at ensuring the increased borrowing of the British government in recent years.

The central bank confirmed on Tuesday that it will begin its tightening plan in a statement after the markets closed.

“The maturity distribution of gilded sales for the next quarters will be evaluated before the first quarter of 2023,” he said.

Earlier, the central bank misrepresented a report in the Financial Times that said senior officials at the BoE had decided that a delay in QT might be needed, after deciding that the gilding market had been “very troubling” in recent weeks.

British government bonds – or gilts – suffered historic losses following the release of Prime Minister Liz Truss’ new economic growth plan on September 23.

Gilts recoupled some of their losses after a massive U-turn announced by new finance minister Jeremy Hunt on Monday.

“The bank will continue to closely monitor market conditions and, where appropriate, will incorporate this into the design of sales operations,” the BoE said in a statement.

BoE Vice President Jon Cunliffe said on Tuesday that financial markets may remain volatile in the coming weeks, but the risk of another “fire sale” has decreased significantly.

The central bank had previously said there would be a “high bar” for any delay in selling plans.

“There isn’t a huge amount of sales this quarter that could support their view that sales will continue, but it’s a little early to be sure,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

BoE Governor Andrew Bailey said on Saturday that the central bank is not currently using the bond stock as an active monetary policy tool, and the benchmark Bank Rate remains its primary policy tool.

(1 dollar = 0.8842 pounds)

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Reporting by Akriti Sharma in Bengaluru and William Schomberg and William James in London Additional reporting by Kevin Buckland in Tokyo and Dhara Ranasinghe in London Editing by William Maclean, Marguerita Choy and Matthew Lewis

Our Standards: Thomson Reuters Trust Principles.

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