BoE Will Buy Unlimited Bonds To Stem Crisis. QT Target ‘Unaffected’
Just yesterday, Bank of England Chief Economist Huw Pill said plans to proceed with quantitative tightening would go ahead.
It's not a good idea. UK government bonds collapsed late last week, as markets reacted violently to Liz Truss's mini-budget, and by Monday, the selloff felt existential. Five-year yields rose ~150bps over five sessions, and 30-year yields cheapened 50bps in a day. Twice. The BoE euphemistically described the moves as a "significant repricing," but that didn't even begin to
FT described whats at stake for BOE very candidly, they’re not able to step up their tightening programme without systemic liquidity crisis showing up at their door steps. This is no shortage of a bail-out of UK pension funds. I would expect equity risk premium to step up significantly going forward.
https://www.ft.com/content/756e81d1-b2a6-4580-9054-206386353c4e
https://heisenbergreport.com/2022/09/28/a-forced-pension-fund-bailout-full-stop-mcelligott-on-boe/
As I have commented before central banks need to be more circumspect about playing with their balance sheets. I cannot understand the fascination they have with qt. Leave it be. If you don’t increase holdings over time nominal growth takes care of your problem as your balance sheet shrinks relative to the size of your economy. As for the Truss administration, you will not last until the next election. Your fiscal policy is unfair and reckless.
I must agree, follow the advice of the Fab Four and let the balance sheet be, the BoE didn’t even start their QT plans and it was forced to postpone it by the harsh market and economic realities the UK faces. The Fed has put their QT plans in motion but I expect an eventual “postponement” might come to this side of the Atlantic before year end.
Now I have that song stuck in my head.
I’m okay with it.
The Boe did need to buy long bonds now though. No choice.