By David Milliken
LONDON (Reuters) -The Bank of England must sell in “a timely and orderly” way the 19.3 billion pounds ($21.7 billion) of government bonds which it bought in its recent emergency operation to support the market, a senior BoE official said on Friday.
The BoE was forced to step in to buy long-dated and index-linked gilts to halt a fire sale of assets by British pension funds following former prime minister Liz Truss’s Sept. 23 ‘mini-budget’.
“We must execute a timely and orderly unwind of the assets accumulated as part of the financial stability purchase operations, whilst also delivering the MPC’s QE unwind programme,” Andrew Hauser, the BoE’s executive director for markets, said in a speech at a European Central Bank conference.
Hauser said he hoped to give more details of sales “in the next week or two” and that people should “wait and see” when asked if sales would begin before the end of the year.
Index-linked gilts and 20- and 30-year conventional gilts fell after Hauser’s remarks. Yields on 30-year debt reached the highest since Oct. 24, up 10 basis points on the day.
The BoE did not intend to sell the bonds according to a strict timetable, Hauser said.
“We are not forced sellers. We want to work with the market and sell into demand where it exists, and where it doesn’t we can afford to wait,” he said.
When the programme was launched, the BoE said it would sell the bonds purchased “in a smooth and orderly fashion once risks to market functioning are judged to have subsided”.
Hauser said the BoE still needed “to remain sensitive and, if necessary, appropriately responsive to still-febrile market conditions”.
British government bond yields are broadly back to where they were before the mini-budget – following the reversal of most measures in it and the replacement of Truss as prime minister by former finance minister Rishi Sunak.
However, Hauser said liquidity in the gilt market had not yet fully recovered.
The BoE started the sale of short- and medium-dated gilts from its separate 838 billion pound quantitative easing stockpile on Tuesday, but postponed plans to begin selling long-dated gilts this year because of the market turmoil.
These sales are taking place according to a fixed schedule. The BoE plans eight auctions for November and December, for 750 million pounds of gilts each. Demand was solid at the first sale.
The BoE aims to reduce its QE gilt holdings by 80 billion pounds over 12 months, through a mix of outright sales and not reinvesting the proceeds of maturing gilts.
($1 = 0.8910 pounds)
(Reporting by David MillikenEditing by William Schomberg and Jon Boyle)