The Bank of England may limit an extension to its bond-buying program to avoid distorting the gilt market during the London Olympics, according to Lloyds Banking Group Plc.
The U.K. central bank’s Monetary Policy Committee will raise its target for asset-buying by 75 billion pounds ($118 billion) to 400 billion pounds on July 5, Lloyds estimates. Should it plan a hiatus during the Olympics, it may only announce a 50 billion-pound increase, said Eric Wand, a fixed-income strategist in London. That would prevent it from overwhelming supply during a pause in gilt auctions scheduled between July 20 and Aug. 16, he said.
“Given the almost one-month break from supply, the bank is expected to remain very cognizant of the potential market distortions it is capable of inflicting over this period,” Wand wrote in an e-mailed note today. “We would expect an announcement to the effect that it will be tempering its gilt-purchase activities over the latter part of July, early August when participation rates are likely to prove challenging.”
A sale of index-linked gilts via banks will take place as planned in the second half of July, a spokesman for the debt agency, who declined to be named, said yesterday. The Debt Management Office’s weekly Treasury bill tenders will also take place as usual in the period July 27 through Aug. 12 when the Olympics are taking place, he said.
The agency published its issuance calendar, including the pause for the Olympics, when the U.K. budget was announced on March 21.