BOE Tries Once Again to Part Investors With Longer-Dated Gilts

  • Buyback operation seeks bonds maturing in more than 15 years
  • Central bank paying above market price would spark gains: UBS

The Bank of England will get another chance to see how willing investors are to part with their U.K. government bonds today in its latest buyback operation.

The BOE is seeking to purchase 1.17 billion pounds ($1.5 billion) of gilts in the longer-than-15-years part of its rebooted quantitative-easing program. The results will be out this afternoon in London.

While buybacks of shorter-maturity gilts have proceeded with few issues, holders of longer-dated debt have proven to be reluctant sellers due to the higher returns the securities pay in a world where so many government bonds have sub-zero yields. Of the three repurchasing operations of gilts in this so-called bucket, one failed and another last week saw the BOE pay above market prices.

“In the wake of both of those buybacks, it indicated that investors weren’t prepared to sell at market levels in sufficient size,” said John Wraith, head of U.K. rates strategy at UBS Group AG in London. “There are still plenty of bonds available for the Bank of England, but in the early weeks of the renewed bout of QE, the market just has to find the right clearing levels.”

Benchmark 30-year gilt yields fell three basis points, or 0.03 percentage point, to 1.24 percent as of 12:10 p.m. London time, compared with a record low of 1.185 percent on Aug. 11. The 3.5 percent security due January 2045 rose 0.785, or 7.85 pounds per 1,000-pound face amount, to 153.83.

If the BOE “have to pay up a lot again, presumably we’ll see the long-end outperform again over the next few days,” Wraith said.

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