The BoE will launch its unfunded Gilt purchase today, by buying GBP2 bln in six 5-9 year Gilts in a reverse auction. Gilt futures have rallied after BoE announced details of its quantitative easing last Thursday but with the central bank creating money, surging Gilt prices should not prove an obstacle. Indeed, it would mean getting more money into the system more quickly while buying less Gilts. Yesterday there were rumors that newly appointed MPC member Fisher has told a German investment bank that the BoE is aiming to tighten the Sterling LIBOR/OIS spread through its Gilt purchases. The spread did tighten yesterday by 3bp, but is still very wide at 143bp, versus 109bp for the dollar LIBOR/OIS spread. According to rumors, the BoE will buy back the targeted Gilts at "any price", to push the LIBOR lower and thus influence the LIBOR/OIS spread. For the reverse auction, the BoE will take non-competitive offers until 12.00GMT, announcing the amount it will allot to such offers at 13.00GMT. It will also publish the size open to competitive offers, and will take bids for that operation between 14.15GMT and 14.45GMT and announce results shortly thereafter.
Meanwhile, Reuters reported that the central bank had dropped the 8.75% 2017 Gilt in today's reverse auction, only to report 6 minutes later that the BoE has put the paper back on its auction schedule. GBP2 bln is to be invested in six Gilts: 5% 2014 paper, 4.75% 2015, 8% 2015, 4% 2016, 8.75% 2017 and 5% 2018. Gilt futures have rallied after BoE announced details of its quantitative easing last Thursday but with the central bank creating money, surging Gilt prices should not prove an obstacle. Indeed, it would mean getting more money into the system more quickly while buying less Gilts.
