The BOE revived its crisis-era bond-buying program as part of a package of measures to support the economy in the wake of Brexit
LONDON—The Bank of England said Wednesday it plans to make up a shortfall in its bond-purchase program later this year after it couldn’t find enough bonds to buy in a Tuesday auction, an unusual hiccup that analysts say probably won’t become the norm.
The BOE revived its crisis-era bond-buying program on Thursday as part of a package of measures to support the economy in the wake of voters’ decision to exit the European Union. It said it would buy £60 billion ($78 billion) of U.K. government bonds, or gilts, over the next six months, a policy known as quantitative easing. The aim is to drive down long-term interest rates and prod investors into riskier assets, making borrowing cheaper and easier for businesses and households.
The BOE’s first foray into the market in its latest round of QE went off Monday without a hitch. But on Tuesday, it said that it was only able to buy £1.12 billion of the £1.17 billion of the bonds it had hoped to scoop up.
On Wednesday, it said the roughly £50 million shortfall would be made up in the second half of its six-month buying spree.
The reason for the shortfall wasn’t entirely clear. Analysts said on Wednesday the snafu probably reflected in part the nature of the bonds the BOE was trying to buy. The central bank holds auctions for bonds of different maturities on different days; on Tuesday it wanted to buy bonds maturing in 15 years or more.
Such bonds are highly prized by pension funds and other long-term investors, which covet them to match their future liabilities as they fall due, said Luke Hickmore, senior investment manager at Aberdeen Asset Management PLC. That might make them “challenging to get hold of,” Mr. Hickmore said.
Others offered more mundane explanations. Alan Clarke, director of fixed income research at Scotiabank, said the traditional mid-August lull in London’s financial markets probably meant some senior bond dealers were away from their desks, leaving decisions in the hands of junior staff unsure how to deal with the central bank. He added bond prices will likely rise as the BOE’s purchases get into full swing, so dealers won’t have felt in any rush to sell in the first days of the six-month program.
“Why sell early on and miss out on the upside?” he said.
U.K. government bond prices rose on Wednesday following the auction mishap, driving yields higher. After falling below 0.6% Tuesday for the first time in history, yields on 10-year U.K. sovereign bonds touched a new record-low of 0.523% Wednesday.
The BOE is due to purchase 10-year gilts Wednesday as part of a basket of assets maturing between seven and 15 years. The outcome of the so-called reverse auction, where the BOE sellers to submit bids and rejects those it doesn’t like, will be published later Wednesday. The BOE will seek 15-year debt again next week.
