The Bank of England has unveiled an unexpected overhaul of its quantitative tightening (QT) programme, proposing to cease public bond sales and instead sell £146bn of gilts directly to the Treasury. This new strategy, announced on Thursday, aims to manage the Bank's vast bond portfolio until 2035.
Under the new approach, the Bank will halt all sales of its longest-dated bonds, specifically keeping £120bn of 30-year plus gilts until they mature. Additionally, £222bn of gilts due to mature before 2035 will be allowed to roll off its balance sheet organically.
The proposal suggests the remaining £146bn of gilts will be sold to the Treasury at a pace of £20bn annually. The Treasury's Debt Management Office would then convert these securities into shorter-term debt before reintroducing them to the bond market.
While the Monetary Policy Committee also held interest rates at 3.75 per cent on Thursday, the change to QT is considered by some analysts to be more significant. The previous 'active' approach to QT, which involved selling gilts onto the market, had drawn criticism for potentially increasing borrowing costs for the Treasury.
The announcement has been positively received by some analysts and markets, with the 30-year gilt experiencing one of its best trading sessions in several years. However, the proposal has also raised questions regarding the Bank of England's operational independence from the Treasury.