Bank of England Estimates Higher QT Impact on Gilt Yields, Considers Slower Pace

The Bank of England (BoE) is reviewing its quantitative tightening (QT) programme amid concerns about its impact on long-term government borrowing costs and market liquidity. The BoE estimates its bond sales have added up to a quarter of a percentage point to 10-year gilt yields, a higher impact than previously thought, which has contributed to rising long-term borrowing costs, including mortgage rates. Investor expectations for QT over the next year have moderated, with the median expected reduction in bond holdings falling from 75 billion pounds to 72 billion pounds, and fewer investors anticipating the current pace of 100 billion pounds annual QT to continue. The BoE warned that sales of long-dated gilts risk amplifying market strains due to reduced demand from pension funds and lower appetite for long-term assets, suggesting a possible slowdown in the pace of QT. Despite these pressures, the BoE intends to continue its gradual and predictable QT approach but has refrained from providing detailed guidance on future QT pacing. Market analysts interpret these signals as increasing the likelihood of a reduction in the annual QT target in the upcoming policy decisions.