BOE Buys 1 Billion Pounds of Company Debt in Brexit Stimulus

  • Central bank has spent 10% of 18-month budget since Sept. 27
  • Purchases are part of efforts to support economy after EU vote

Is Carney Doing Enough to Soothe Brexit Butterflies?

The Bank of England said it had bought more than 1 billion pounds ($1.2 billion) of corporate bonds, keeping up a blistering start to a purchase program designed to help support the U.K. economy after the Brexit vote.

The central bank’s holdings of corporate debt rose to 1.04 billion pounds as of Oct. 12, up from 507 million pounds a week earlier, according to an update on Thursday. Purchases started Sept. 27.

The BOE has already spent 10 percent of a budget intended to last 18 months as it tries to hold down corporate borrowing costs amid a plunging pound and economic uncertainty caused by the vote to leave the European Union. The fast pace may suggest the program could eventually be expanded, said Gordon Shannon, a money manager at Twentyfour Asset Management, which oversees about 7.3 billion pounds.

“They are serious about this,” Shannon said. The potential for an increase “is starting to seem like a real possibility,” he said.

Bonds eligible for the BOE’s 10-billion purchase program include notes from U.K. companies and from overseas businesses with significant operations in the country, such as Apple Inc., Electricite de France SA and General Electric Co. Debt is bought in reverse auctions on Tuesdays, Wednesdays and Fridays.

‘Big Statement’

The central bank intends to buy an average of about 130 million pounds of investment-grade corporate debt per week, based on the program’s size and duration. Purchases may fluctuate due to seasonality and market conditions, according to the Bank of England.

The size of purchases so far “is a big statement,” said Tomas Hirst, a London-based credit analyst at CreditSights. “Given that the expectation was that we’d be somewhere in the region of 300 million by now, it gives you an idea of how far ahead they’ve gone.”

Governor Mark Carney announced the program in August to help support the economy following the the Brexit vote. The central bank also cut interest rates to a record low of 0.25 percent and stepped up purchases of sovereign debt. 

Concerns about the impact of Brexit have driven the pound to the lowest since 1985 and hammered sterling debt. The average yield on corporate notes in the currency has risen to 2.53 percent, after falling to a record-low 2.06 percent in the days after the BOE’s August announcement, based on Bloomberg Barclays index data.

“If the Bank of England wasn’t there buying bonds we would have had a bigger
sell-off,” said David Riley, who helps oversee $58 billion of assets as head of credit strategy at BlueBay Asset Management LLP in London. “They’re effectively underwriting the market.”

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