British Pound: QT overhaul supports Gilt curve and Pound – MUFG

Derek Halpenny at MUFG highlights that the Bank of England left rates unchanged, but signals suggest a hike is likely in November as most of the majority voting bloc see tightening as needed. The surprise came from a major QT overhaul, with paused sales, permanent holdings of long Gilts, and structured sales to the DMO, which ease long-end yield risks and are seen as modestly Pound positive.

BoE QT changes ease long-end risks

"There was only 2bps of hikes priced for the BoE announcement yesterday, so the unchanged policy announcement was no surprise."

"While the rate decision was expected, the updated QT plan was not."

"Thirdly, GBP 146bn worth of Gilts maturing between 2035 and 2049 will be sold at a pace of GBP 20bn per year with these bonds sold directly to the government via the DMO rather than directly to the market via auctions as has been the case under QT so far."

"The active sales of GBP 20bn per year of Gilts maturing between 2035 and 2049 to the DMO rather than to the market is biggest impact here and the 30-year Gilt fell by 12bps yesterday."

"The pound fell yesterday but reduced risks to the Gilt market ahead of the budget on 28th October does also reduce to some degree a negative reaction."