BOE Says Corporate-Bond Buying Program May End Ahead of Schedule

The Bank of England said it may finish a 18-month corporate-bond buying program ahead of schedule because investors are more willing to sell than expected.

“It seems probable that the bank will be able to complete the purchase program faster than we thought possible,” Chris Salmon, the central bank’s executive director for markets, said in a Jan. 24 speech in London. This may be because BOE buying has boosted secondary-market liquidity “by more than we had allowed for,” he said.

The central bank has already used more than half its 10 billion pound ($13 billion) bond-buying budget since starting purchases about four months ago to support the U.K. economy following a vote to leave the European Union. It may soon face the challenge of how to cool quantitative easing without sparking a market slump.

“We are concerned about who will buy the market post-BOE,” HSBC Holdings Plc credit strategists led by Jamie Stuttard wrote in a note to clients this week. “No central bank has ever tapered corporate bonds.”

How long the Bank of England can keep up its purchase rate will partly depend on investors’ continued willingness to sell, Salmon said. It will also be affected by a requirement to keep holdings broadly in line with the wider market, which will become more difficult as the bank nears its purchase target, he said.

The central bank has bought 5.29 billion pounds of corporate bonds. It is buying investment-grade sterling notes issued by U.K. companies or by overseas businesses with significant operations in the country.

Yields Rise

The announcement of the purchase program last year helped spur a flood of new issuance as companies rushed to lock in cheap borrowing costs. The jump in supply and declines in the pound has since contributed to average yields in sterling rising to 2.66 percent from a record-low 2.06 percent in August, Bloomberg Barclays index data show.

The Bank of England divides its corporate-bond purchases into nine sectors to help reflect the wider market. The largest component so far is debt from electricity companies, which makes up more than 20 percent of holdings. The smallest share is energy at less than 5 percent.

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