Bank of England Overhauls Quantitative Tightening to Lower Gilt Yields

The Bank of England has overhauled its quantitative tightening program to unwind a £488 billion portfolio by 2034. The central bank scrapped plans to sell long-dated gilts to the private sector, opting instead to sell £146 billion in bonds maturing between 2035 and 2049 directly back to the Treasury through the Debt Management Office. This shift aims to simplify the sales process and reduce the supply burden on long-dated gilts, which contributed to a 12 basis point decrease in 30-year gilt yields.

Under the new framework, the bank will retain £120 billion of gilts maturing in 2049 or later to back future banknote issuance, while £222 billion of gilts maturing by 2035 will be run off. Active sales are paused until 2027, pending a final ruling by Chancellor John Healey in April. The bank also maintained interest rates at 3.75%.

Analysts from Barclays Bank UK PLC suggest the slower pace of sales will reduce pressure on repo operations and create a shortage of government bonds, providing a tailwind for long-dated gilt spreads. Chancellor John Healey noted that the proposed sales model would see a return to a single public-sector supplier of gilts to the market.