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Why the BOE Overpaying for QE Bonds is Not Necessarily a Bad Thing

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Photographer: Simon Dawson/Bloomberg
Updated on

Nobody likes paying over the odds for something, right? Well maybe it has its upsides when it comes to the Bank of England's government bond purchases.

The BOE paid a premium for all the long-dated gilts bought at an operation on Tuesday after it drew offers of just 1.5 times the amount sought. The bank is buying 1.17 billion pounds ($1.5 billion) of the bonds each week under its new QE program, part of a package of measures designed to combat the economic fallout of Brexit.

While this is the second time in three weeks that the central bank has had to pay above the market price for bonds with a maturity of at least 15 years,  John Wraith, the head of U.K. rates strategy at UBS Group AG in London, says concerns miss the point.