BOE Could End Corporate-Bond Purchases as Soon as This Month

Updated on
  • Program would finish earlier than initial 18-month timetable
  • MPC member Vlieghe says purchases proved easier than expected

The Bank of England’s corporate-bond purchases, one of the stimulus measures announced after the Brexit vote, could conclude as early as this month as the program nears its 10-billion pound ($12.5 billion) target.

After starting purchases in September, BOE officials have found investors more willing to sell company debt than they expected and are on track to meet their target within weeks.

While officials had initially given themselves a timescale of 18 months to complete the program, they did not set any sort of monthly goal to spread purchases evenly across that period and are happy to wind up operations earlier, according to policy maker Gertjan Vlieghe.

“The default position is that when we’ve accumulated the stock, that’s it,” Vlieghe said in an interview in London on Wednesday. “You can read from our discussions in the minutes that we are not at the point right now where we think the economy needs more stimulus, so the baseline is this thing is finished.”

The central bank bought 9.12 billion pounds of corporate bonds as of Wednesday, according to the latest data. It will likely reach its target by the end of April or early May if buying continues at the pace of the last two months and if investors remain willing to sell, though the Easter holiday may slow the pace.

“At the prices we offered, we received bonds at a faster clip than we thought,” Vlieghe said. However, “there is no automatic implication that because you did this before the deadline you set out, that you therefore have to continue.”

The BOE is buying investment-grade sterling notes issued by U.K. companies or by overseas businesses with significant operations in the country. The announcement of the program in August helped spur new issuance as companies rushed to lock in cheap borrowing costs.

“With the Bank of England’s quantitative easing limit fast approaching, we expect greater volatility in the second quarter” in the corporate bond market, said Jonathan Platt, head of fixed income at Royal London Asset Management. “We expect to see some manner of sell-off in high-profile bonds where prices have been boosted by the quantitative easing program.”

Sales of sterling-denominated corporate debt totaled 8.8 billion pounds in the first three months of this year, more than double the 3.7 billion pounds issued a year earlier, according to data compiled by Bloomberg.

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