The Bank of England on Tuesday warned that “the prospect of a self-reinforcing ‘fire sale’ dynamic poses a material risk to UK financial stability.”
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The Bank of England received strong demand from investors on Tuesday at its first auction to sell government bonds from its 838 billion pound ($961 billion) quantitative easing reserve.
The BoE aims to sell 6 billion pounds of gilt in eight auctions in November and December, as part of a plan to reduce its gilt holdings by 80 billion pounds over 12 months through a combination of sales and not reinvesting money from maturing gilts.
Britain’s central bank was the first among major economies to begin direct sales of government bonds – partly due to the long average maturity of its holdings, compared to those held by central banks in the United States and Canada.
There was little immediate market reaction to the auction results. The benchmark five-year gold yield remained steady at 3.56%, down 4 basis points on the day and little changed from pre-auction levels.
Investors bid 3.26 times the 750 million pounds of gilts with remaining maturities of three to seven years that the BoE is putting up for sale.
During standard British government bond auctions held by the United Kingdom’s Debt Management Office, investors typically bid more than twice the amount of gilts available. These auctions are usually for larger amounts of gilt than the BoE sells at its auctions.