Bank of England Sold Bonds Outright Today to Speed up QT, Will Sell More at Regular Auctions: First Major Central Bank to Sell Bonds Outright

It went fine. Gilt yields are way down from panic highs. Another dream of the “pivot” mongers goes to heck.

By Wolf Richter for WOLF STREET.

The Bank of England today, as part of its quantitative tightening (QT), sold £750 million in UK government bonds (gilts) at auction. These bonds were part of the holdings the BOE had acquired during the QE program since 2009. The bonds it sold today had a remaining maturity ranging from about three years to seven years.

And so the BOE became the first major central bank to sell bonds outright as part of its QT.

Back on dual-track QT to speed up QT.

The bond sales come on top of the classic QT of letting maturing bonds roll off the balance sheet without replacement, which is what the Fed and the Bank of Canada are now doing.

The BOE already started QT in March this year. Three gilt issues matured and came off the balance sheet in 2022 without replacement: in March (£27.9 billion), in July (£3.2 billion), and in early September (£5.9 billion), for a combined £37.1 billion.

Over the next 12 months, another £35 billion in gilts will mature and come off the balance sheet. The outright sales of gilts, including the sale today, are on top of the maturities.

So now the BOE is back on dual track with its QT: Through outright sales of bonds and through letting maturing bonds run off the balance sheet.

These gilt maturities are few and far between – about two to five maturities per year – as the BOE holds gilts with very long maturities. Its longest dated gilt issue won’t mature until 2071. Over the next 10 years, £430 billion in gilts will mature, just a little less than half its current gilt holdings of £837.9 billion.

To speed up QT, the BOE has started its program of selling bonds outright at regular auctions. On October 20, the BOE laid out the revised schedule for the gilt sales in Q4, 2022. Over the next five weeks, from November 1 – today’s sale – through December 8, the BOE will hold eight auctions, selling short and medium maturity gilts, £750 million at each auction, for a total of £6 billion in five weeks. One down, seven more to go.

The BOE said it will announce the Q1 2023 auction schedule on December 16. Dual track QT back on track.

There had been a hiccup: pension-fund death-spiral interlude.

Today’s bond sale should have taken place in early October. That was the plan. The BOE’s Monetary Policy Committee had voted at its meeting on September 22 to start selling gilts outright in early October.

But on September 28, the whole plan was put on ice when highly leveraged UK pensions with £1.5 trillion in liability-driven investment (LDI) funds threatened to implode as the LDI strategy wasn’t designed for the sharp rise in long-dated gilt yields. The pension funds received margin calls from the investment banks that had sold those LDI strategies to them, and they were dumping gilts and other assets to meet those margin calls, which caused gilt prices to plunge further, and yields to spike further, which further threatened the pension funds, thereby creating a death spiral for gilts that began to spread into other assets.

The BOE stepped in on September 28, announcing that it would buy large amounts of long-dated gilts over a two-week period to calm the gilt market, and that it would put its planned bond sales on hold till November.

This was instantly hyped as another “pivot” by the Wall Street pivot mongers that had been predicting pivots by central banks left and right since May in order to manipulate markets higher. Famous hedge fund managers and bond fund managers with a big presence in the social media spread the word and showed up on TV mongering this pivot story, and it was eagerly lapped up by the crowd and spread from there.

Meanwhile, the BOE bent over backwards to explain that this wasn’t a pivot back to QE, but a short effort to calm a panic and give the pension funds time to deleverage their LDI-linked derivative positions.

Its primary goal is to contain inflation that is raging at 10%, and it needs rate hikes and QT, but it also needs markets to not spiral into a panic over the pension funds.

The BOE ended up buying just £19 billion of gilts, far less than the £90 billion of gilts it said it might buy. And as announced, the operation ceased on October 14.

So now dual track QT is back, and more rate hikes are in store. It has already hiked its policy rate seven times, including by 50 basis points at its September meeting, to 2.25%.

Markets have calmed. The government that had spooked the bond markets is gone. A new government has settled in. Everyone is going to have to pay more in taxes, it said, which further calmed the bond market. The bond vigilantes had risen from the dead and won their first battle in many years. The bond market calmed down. The 10-year gilt yield has dropped by about 110 basis points from peak panic to 3.46%. And the BOE can proceed with rate hikes and QT.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  99 comments for “Bank of England Sold Bonds Outright Today to Speed up QT, Will Sell More at Regular Auctions: First Major Central Bank to Sell Bonds Outright

  1. andy says:

    The new PM is married to billionaires family. Perhaps they can bail out BoE when it comes to it.

  2. The wealth effect is a Ponzi scheme says:


    There better be a damn good Michael Lewis movie about the 6 week Liz Truss government in a couple years.

    Pretty scary how the highly experienced leaders chosen to run the government had no idea how their actions to just stop paying the nations bills would play out.

    • HowNow says:

      We hold an unfounded belief that political leaders know what they’re doing. It’s largely seat-of-the-pants stuff.

      • Anthony A. says:

        Just remember that most of them have no prior experience in the job when they get elected (or chosen).

      • Spencer says:

        That’s right. The FED’s economists have learned their catechisms.

        • NBay says:

          Guess that’s the Southern Baptist version of Bible School….funny either way.

    • DR DOOM says:

      The UK Tory Party did what the Chinese Communist Party did, except twice. Both installed an un-elected leader. Not much high ground worth defending there. “It’s done”.

      • Harrold says:

        3 times if you include Charles III.

      • Nick Kelly says:

        Utter nonsense. The UK Conservative party will have to face an ELECTION when the PEOPLE will decide to endorse the change or not.

        The UK and Canada have a different system of responsible government than the US. The PM is never directly elected. Thatcher’s party never lost an election while she was PM, but the party replaced her. In Canada, decades ago, PM Diefenbaker was replaced by the party.

        This does not equate them with Xi’s coronation, where an elderly comrade is lifted out of his seat by his armpits and forced out of the meeting while attempting to protest.

        The new UK PM will face an election, Xi never will.

        • Nick Kelly says:

          PS: Sunak was of course an elected MP before winning the party’s internal election to become PM.

        • sunny129 says:

          It is called ‘Parliamentary’ Govt unlike Presidential election in US.
          The dominant (coalition) elects it’s leader as PM, just like in India, Australia, Canada and UK++

        • NBay says:

          I like it better. Having several parties with a variety of primary agendas would tend to force more compromise in government, I would think. I forgot which old English system you said our government was patterned after, but a two party system and a powerful president don’t seem to be working well lately….if ever.

    • andy says:

      It’s what happens when you run out of other people’s money. It’s too bad too. I heard the lady was highly endowed. The next Maggie Thatcher.

      • NBay says:

        “What is business? Quite simple. It is other people’s money.”
        -Alexander Dumas
        Famous as a businessman, and easy .01%er of his time. Among other things.
        Reagan/Thatcher types swiped and spun his line.

    • Evan says:

      The fact that The Economist, The Financial Times, etc. sat on their hands while the obviously incompetent Truss and her team were installed by know-nothing voters tells us how broken the UK is. If you haven’t seen it, I recommend taking a look at the notorious Liz Truss ‘cheese speech.’ The idea that this person would be at the center of a government in crisis is horrifying. The fact that the financial press stood silent as she was installed is equally pathetic.

      • Lune says:

        But but but, tax cuts!!

      • Prairie Rider says:


        The Financial Times is owned by Nikkei, Inc. in Tokyo.

        The Economist is owned by ‘The Economist Group’ which is comprised of: 43% the Agnelli family; 21% the Rothschild family; the Cadbury, Schroder and Leyton families have shares also, and own most of the rest of it.

        I reckon it’s always good to know who owns the media outlet(s) that reports the news.

        • VintageVNvet says:

          Thanks for this information PR.
          We, in this case the family we used to subscribe to the Economist and read it cover to cover; however, as they drifted farther and farther away from my ”centerist” philosophy and focus on merit based biz economics, especially my own, I gave it up.
          They did have some very thorough reporting and sharp editing back in the day decades ago, maybe the of earlier times, eh,,, but haven’t looked at it recently.
          Fact is it doesn’t really matter what the names, etc., are of these or any other owners of MSM, what matters is their control of the narrative touting and spouting the desires of the oligarchy.

        • NBay says:

          Yeah, thanks. As with most info in the comments, I don’t have to verify it. It would be challenged by other knowledgeable commenters or Wolf. Informative article, informative comments.
          Learned a lot already tonite.

  3. DR DOOM says:

    Let’s see, hummmmmm…….3.46% return with 10+% inflation heading to 20%. Who would buy that butt wipe? If Paul Harvey was alive he would ask ” whats’s the rest of the story?”. I do know the difference between shit and shinola.

    • Nacho Bigly Libre says:

      Yeah, how much did the geniuses at BoE lose on these bond sales?

    • SWE Josh says:

      I still don’t understand this argument. Sure, ideally you would make more than 3.46% but isn’t it better to “buy that butt wipe” then to sit around with your money on the sideline in the bank (although interest rates there are finally creeping up as well)? It’s not like there is a safe investment returning 10% or 20% so isn’t 3.46% the least worse option?

      • Twinkytwonk says:

        You can get 5% on savings if you are willing to tie your money up for one year. This has gone up from 3% in around 2 months. If interest rates go up again tomorrow then I wouldn’t be surprised to see 6% on a one year fix.

        Yeh I know it’s will off inflation but if you plan to buy a house with that money you’re getting the interest on your savings plus the house price falls.

      • Augustus Frost says:

        No, not for a 10YR bond in a rising rate environment.

  4. Old school says:

    Sometimes I feel like I am living in a bad dream.

    1. Fed and BOE manipulates all prices by setting interest rates. Generally this has been to favor borrowers at the expense of savers. End result debt saturation.

    2. Fed manipulates “market participants” by jaw boning and giving a narrative to get the market reaction they want. They leak to their favorite Wall Street reporter.

    One could make the argument that it is a system built on dishonesty which is not a good foundation for a monetary system. Right now I bet PhD s at the Fed and Treasury have multiple plans on how to control the yield curve if they need to dig the nation’s debt hole a little deeper.

    • DawnsEarlyLight says:

      Sorry, it is not a dream.

      • Wisoot says:

        “Give the pension funds time to deleverage their LDI-linked derivative positions.” PHDs at BOE -asleep or silenced

    • CCCB says:

      It’s only a “bad” dream if you don’t listen to what the FED says they’re going to do and don’t act accordingly.

      Low or falling rates = Buy assets
      High or rising rates = Sell assets

      It’s not rocket science.

      Every fed meeting should end with this disclaimer…
      “Deny the fed at your own risk!”

  5. Rossco says:

    So to cut a long story short, CB’s are focussed on mitigating financial stability risks but will continue to tighten financial conditions ?

  6. paul neil says:

    Thanks for your clear explanation of what was going on with the British bond market. Central banks want people to deleverage in a methodical manner. Those groups that are not paying attention, will get hurt. I have only been following you for a short time, but all you have said is very sound.

  7. TEMPLE says:

    Hi Wolf, I have a possibly dumb question: what happens to the money the BoE gets from the sale of these bonds? In theory, if they don’t wipe the cash off the books, then selling the bonds won’t actually be QT, correct?

    • Z33 says:

      It’s still QT as the cash is now out of the economy and in the BoE. The bigger issue is how effective will their QT be since they bought the bonds high and now selling them low so they are still leaving cash out there as a net result even though the bond is off the books.

    • Wolf Richter says:


      A central bank creates money to buy bonds, and it destroys that money when it sells the bonds. That’s what QE and QT are all about. Central banks don’t have a “cash” account where they “save” the proceeds from the sale.

      Same for the Fed and all the others. With QT, they’re destroying the money they created with QE. At the most fundamental level, it’s pretty simple actually. The mechanics of it are more complicated tho.

      • Kunal says:

        True but if value of bonds fall substantially QT doesn’t take out all money that QE injected. If Fed or BoE tried to sell all bonds it’s value will fall to near zero and it won’t have the QT impact that Fed wanted.
        Well in the end it’s all games that they play to prop up money supply in disguise of these stupid mechanics. Fed, Treasury and Govt and their mumbo jumbo are just a facade to hide their evil scheme to keep stealing from poor and enriching the wealthy. It’s funny that some people fall for this facade and take it seriously when in reality the scheme is very simple – print baby print.
        USD now is 1% of the value of USD 100 years ago. I best it’ll be 100x lower again in another 100 years.

        • Wolf Richter says:

          Bonds issued by a government in its own currency can never go to zero, by definition, because when the bond matures, the holder gets face value, no matter what. Governments cannot run out of money in their own currency (they can always print more). But they can destroy the purchasing power of that currency, and that’s the problem now (inflation). So central banks are hiking rates and doing QT to bring this inflation down. Raging inflation destroys an economy, and central banks know that.

        • Lune says:

          You’re not looking at the whole picture. If a bonds fall in value, *someone in the private sector* lost money as well, and essentially amounts to tightening in the private sector. Assets become the basis for loans and spending, so if your assets fall in value (be it bonds, stocks, houses, etc) your ability to spend also falls. Which is the whole point of QT.

          Take a simple example:
          Fed buys a bond for $100. The private player that sold the bond gets $100, which he invests in the stock market. (This is what causes asset values to rise even if their actual productive value doesn’t change).

          The Fed raises interest rates, causing both stocks and bonds to fall. The Fed buys the bond back at $70. You’re saying that leaves $30 of QE sloshing in the market. That would be true *if* the assets that the private seller bought with that $100 stayed at $100, which they don’t. If the stocks he bought with that $100 goes down in value to $70 due to the interest rate rise, then he’s lost $30 of spending power.

          So the Fed takes back $70, and the market loses $30 nominal value. All told, $100 of buying power is gone. Does that make sense?

          Obviously it’s more complicated than that, but overall, if the Fed loses money on its sales, that means the overall market is down, which means the asset values that power borrowing and spending are also down. You need to account for all effects when doing your calculations. (NB that also means when the Fed injects $100 it leads to more than $100 effect in the economy since rising asset values lead to more spending power)

        • Calvin says:

          I had seen your comments before, but this is clearly your worst. You do lack logical deductions in your arguments if I can call them that.
          You put up some baits for discussion but you don’t make your point.
          I admire Wolf that he replies to you in such a civilized way.
          Ps. You made some points like my Uber driver in NYC. I keep quiet when he talks. Probably I should have kept quiet this time as well…

        • Nacho Bigly Libre says:

          I’ll give a simpler example that illustrates Kunal’s point.

          Say Fed purchased a bond from you at $100. You kept that $100 in your piggybank.

          Now that the rates are higher, bonds lost value – let’s say the market price is now $95.

          If the Fed wants to sell (not rolloff) the bond and you decided to buy back that bond, you only have to shell out $95.

          Fed made a loss of $5 and you made a profit of $5.

          @Calvin, Geez man. Before all-out criticizing someone, at least make an effort to understand what they are saying.

      • Ray says:

        “A Central Bank creates money………”
        We can ALL stop right there.
        Nobody should be allowed to “create” anything out of nothing.
        It’s time for guillotines globally…….otherwise, the ridiculous round-a-bout discussions regarding this cesspool of world finance will just go on and on and on until the iceberg is upon us.
        Anyway…….next time you’re at the bank, try depositing absolutely phucking nothing……and tell them you expect to see your balance to increase by $50,000.
        When they refuse…….tell them you are exercising your right to “create money out of nothing”…….just like the biggest of big banks do.
        Watch the teller / bank manager look at you like a cow looks at an on-coming train.
        Also, take in a printed photo of a guillotine…….leave it with them after you’ve closed your account, and ask them to which South American nation they’ll be fleeing, when the pitchforks are at the front door in a few months.
        FAIR DINKUM………..

        • NBay says:

          The FED is like back-up (“lender of last resort”) for FRACTIONAL BANKING which is ALSO pure money printing. That money goes for lucrative corporate banker’s salaries and stupid or smart (but always lucrative because of their “service fees”) investments in whatever they choose that may or may not produce a profit for the bank. They can even gamble on WallSt with that corrupt bunch, where margin trading is one of the many methods of money printing there.
          And there are many, many other things for bankers to choose from.
          It has been going on for a long time, so long that 2% inflation is now considered a “reasonable target”.
          Couple that with corporate “nobody is accountable or responsible” as the corporation itself is a “person” with the rights of any person and you/we have a real mess.

        • NBay says:

          I still like what Soros said at his Congressional Dog and Pony Show, during/after the GFC, where he was questioned about possibly causing it, since he shorted the whole mess somehow and made a LOT of money.

          “They can keep inventing financial instruments [to invest in/swap/trade/whatever] faster than you can ever make laws regulating them”

          He also said he was just a Mathematician…evidently a very good one.

        • NBay says:

          We have come a long long way from when people took their gold and silver coins to goldsmiths (because they had a vault and probably armed guards) and were issued deposit receipts for it.

          Then some guy thought, “hey, I can make money off off providing that service”.

          Beats the mattress…..I guess.

      • VintageVNvet says:

        Thanks once again for your VERY wonderful and clear reporting WR!!!
        Thinking,,, IF maybe, I can stay on this side of the dirt and keep reading YOUR clear explanations of ”stuff” my mentors and femtors have at least tried to explain to me over the last six or eight decades,,,
        WE, in this case the family WE, might just be able to ”invest” once again in the SM and other than Federal GUV MINT bond mkt…

  8. Cytotoxic says:

    They shouldn’t have acted to calm that panic. Let the markets freak out, if an asset is worthy money will find it. Accelerated price discovery, and it would have done a lot to put out inflation.

    • phleep says:

      Everything is not just a one-off garage sale. These folks are regulating a money supply, with an eye on things like price stability and operating budgets for a government that paves roads and provides other public goods, etc.

    • HowNow says:

      Cytotoxic: Crash the markets? Obviously you’re sitting in cash and want to buy on the cheap. How noble.

      • Confused says:


        I don’t know Cytotoxic and assume you don’t either, so why attack his motivation? Of course, his arguments are fair game.

        I’m sick and tired of hearing how the selfless dogooders on Wall Street get spooked so easily. Given their compensation levels, they should be as cool as cucumbers. As far as crashing markets is concerned, I don’t want them to crash literally even though that might end moral hazard for a decade or two, but I want to see all the assets bubbles completely deflated in one to three years and QE outlawed even sooner. In fact, I think the Fed should announce that it will sell all of its MBS in Q1 of 2023.

        • VintageVNvet says:

          hear hear!!! but u don’t seem confused to me???
          Time and enough to very literally ”wipe out” ALL,,, Repeat ALL of the various and sundry and apparently these days VERY extensive ”derivatives” and anything,,, repeat, ANYTHING that is ”ONLY PAPER”..l.
          Until then, I can just suspect that old and wiser folks will continue to suffer with lower than reality interest rates,,, etc., etc.

      • cb says:

        Cytotoxic; Ignore the “noble” HowNow. “Obviously” he has money in the markets and wants support for high asset prices, no matter the manipulation involved. His interests are the best interests.

  9. tannin says:

    Seems to me BoE is tinkering around on the fringes…no way they’re going to really make a dent in their total gilt holding of 837.9 billion pounds….some improvement, great, but if/as/when major recession starts to bite, and that bite will be/is earlier and fiercer in U.K. than N.A., they’ll certainly stop these auctions, and possibly even rebuy when issues mature. Guess I’m sortof a pivot gal…..not necessarily expecting an obvious ‘in your face’ pivot.. something more subtle.
    Truly difficult times in Europe and U.K. right now, leaving govts/C.B.s to walk a very fine line, maybe an impossible line to walk …..either crash an already damaged economy or crash the currency……
    If Sunak, new U.K. P.M. raises taxes, as he’s suggested, how can BoE continue to take liquidity out of economy, save for modest token amounts ?

  10. Richard says:

    They bought these bonds exactly when they should have been selling them and they are selling them (at a big loss) when they should not be selling them….the UK is already deep in recession which will get much worse.’
    It is the sick man in Europe, even if it is legally out

    • Wolf Richter says:

      Agreed that the BOE should have never done QE and it should have never bought any bonds (same for all central banks). But there is never a bad time to sell those bonds, esp. with 10% inflation. Sell them now, sell them every day, sell them in big piles, sell them no matter what, and let investors adjust to this reality. This would bring inflation down fairly quickly and keep it down.

      • VintageVNvet says:

        Wolf,,, Now I know what a really intelligent person you are because you agree with me SO much…
        Very likely to take a few years as was the case last time and similar times back to 1929 according to granpa.
        One way or ‘nother, WE the PEEDONs who have our very clearly “EARNED” savings in CASH,,,
        Will almost certainly do as well as WE did prior to the oligarchy establishing the FRB to steal our ability to ride out and benefit from every crash.
        Folks really need to understand that the FRB was initiated to steal the savings of WE the PEEDONs,,, PEONs, whatever name YOU want to put on folk, maybe nowdays fools who work and MAKE things, etc..

      • Venkarel says:

        This theme seems custom made to be reframed as a Dr Seuss saying.
        Sell them big!
        Sell them small!
        Sell them in round lots, Sell them all!

  11. Yort says:

    Stephen Roach would not be included in the Wolf Richter “Pivot Mongers” list.

    I agree with Roach, that Powell and other central banks are STILL currently mired in excessive monetary accommodation “quicksand”, and it will not be painless or quick to “pivot” out this self inflicted mess…

    Per Stephen Roach:

    Powell Fed initially succumbed to the Burns-era mindset and viewed sharply higher inflation as transitory. In fact, from November 2019 through October 2022, the Fed has held the real federal funds rate at -3.7% – fully two percentage points below the Burns Fed’s average of -1.7% in 1974-78.

    Today, the real fed funds rate stands at around -5% (based on the three-month average of the headline consumer price index – my preferred measure). Excessive monetary accommodation is quicksand; a painless exit is exceedingly difficult to achieve. And Powell’s Fed remains mired in it.

    • VintageVNvet says:

      VERY good summary IMHO Yort!
      thank you

    • Old school says:

      I always liked Stephen Roach when I saw him on TV. Seemed like a truth teller in the economics profession.

  12. Wisoot says:

    The first gilt issuance was in 1694 to King William III who needed to borrow 1.2 million pounds to fund a war against France.
    Guilt is a fitting name.

    Originally, the names of the gilts were decided based on the purpose of their issuance to minimize confusion. However, by the early 2000s, they’ve been called Treasury Gilts.
    A return to purpose named guilts facilitates transparency to the people the system serves.
    Otherwise corruption might be susoected

    • phleep says:

      There are bonds issued where the fund and proceeds are tied to a project. Happens all the time. But these have distinct risks to holders too. I would usually prefer a general obligation of the government, meaning one project’s failure will not wipe out my expected payoff and let the government off the hook.

      There are reasons to have a fungible bunch of money in a treasury, not earmarked for each project. Governments do need to provide financial statements for how funds have been used, and they do that.

      • Wisoot says:

        Building risk management into a system means to ensure project success, not design system to play to fail. It is a bone of contention that UK Gov funded infrastructure projects rarely deliver on time to budget. Unlike a Canadian highway bridge that is built over a weekend. Perhaps not earmarking the purpose of funding encourages system of any old leader to oversee any old pot of money and Any old project gets delivered below par. Remove accountable focus and the slack sets in. Letting the gov off the hook rewards mediocre. Your payoff is subject to risk of deciding to invest. Financial statements – nothing AI functionality couldnt handle. A unfocused pot of money is pure attraction.

        • kam says:

          ‘ Unlike a Canadian highway bridge that is built over a weekend.’
          If you could get a CDN Highway bridge built in 5 years and at less than 2 times the estimated cost, then you have seen a miracle.

    • phleep says:

      > “The first gilt issuance was in 1694 to King William III who needed to borrow 1.2 million pounds to fund a war against France.

      Guilt is a fitting name.”

      What the Crown did BEFORE that to extract funds from constituents (and default afterward in various ways) was the real scandal. The Glorious Revolution of 1688, a wholesale rework of the Crown and its banking and legal relations to the public, was the reforming result. The Brits did pretty well overall for a couple centuries after that, creating a global empire, with debt and gilts at its financing core. By 1900, the British financial system was the core of the world’s trading and payment systems. Ultimately the costs of 20th century wars changed things, but what is meant by this “guilts” toss-off? Today the UK has shown some (hopefully renewed, sustained) responsibility with some QT.

      The cheapest cheap shot is the 5-year-old’s generic retort, “it’s all cr*p.” Which is the most common basic comment I see here.

  13. Thunder says:

    Wolf, I am not a bond person but hold about 20% of Nett (and getting cornholed). What BOE sold today would it have been sold at a loss or a profit? This much I know, as a mouth breather, Higher forward interest rates after 30 years of every reducing interest rates does not bode well for my 20%. Bleeding Here !
    P.S Your where right on the services inflation (100%) but Bonds run the worlds Governments

    • Wolf Richter says:

      Whether it made or lost money depends on the price it bought those bonds at. Given where interest rates were, it looks like it lost money. The bonds had a remaining maturity of 3-7 years, so losses are not big because the buyer is going to get face value in 3-7 years. Losses would be much bigger if it had sold a bond with 30 to 50 years of remaining maturity that it bought in 2020. And it did buy bonds like that.

      That said, it doesn’t matter for central banks if they lose money on bond sales. It’s irrelevant. Central banks are not like you, me, or a pension fund. They create their own money, and losses don’t matter to them.

      • Not Sure says:

        This is something that’s kind of hard to wrap one’s head around… Sure central banks are not like you and me, but that doesn’t mean that they never face consequences. Math is still math.

        Super simplified example ignoring interest: A central bank conjures up $100 and buys a bond from the treasury (QE). The treasury now has that $100 cash and the CB holds the other side of that $100 on their balance sheet. If the CB sells the bond for $100, that’s an even swap as far as they’re concerned (not figuring in interest). But let’s say they sell the bond for only $50. Hasn’t the government as a whole (CB + treasury) just effectively grown the money supply by taking on $100 worth of debt + interest to get only $50 worth of gov spending power once all is said and done? Rinse and repeat billions of times and one could imagine selling bonds at a loss to be a pretty bad deal for the government. And in this example, hasn’t the government expanded the money supply by $100 with QE and then removed only $50 worth of QT?

        There’s a good chance I’m missing something important or getting something wrong here, so I’m genuinely curious to know how this all actually works.

        • Venkarel says:

          From what I can gather, I think what you are missing is that the CB (FED idk about the BoE) are not part of the central government and is not run like a profit making business, so you cannot net the transactions out. Since cash is not a thing for CBs, nor is making a profit, they just throw the “unamortized pricing difference” or whatever they call the “loss” from sale of bonds on the balance sheet and amortize (recognize) it over X amount of years. So the net effect of your example is +100 cash in governments hands, $50 Bond (price+interest) in bondholders hands and $50 unamortized pricing difference (loss) on CBs books.

        • Old school says:

          History has a lot of examples of central banks screwing up with paper currencies. Usually it’s when they are printing to cover up a corrupt government or a sick economy and people figure it out and ditch the currency for something better.

          That’s the reason at every press conference Powell reiterates that expectations must be that Fed is going to get inflation back to 2% and not let confidence in currency fail.

    • Nebukadnezar says:

      If you believe in rising interest for money and QT until inflation is ‘under control’:
      Sell every financial asset you own (might even sell your home and rent) and buy short term bonds in the currency of the most aggressive central bank (that’s the FED. Not the ECB).
      If you think rates won’t go further up because inflation is under control: buy every long term bonds you can get.

      That’s it.

      Otoh: I used ‘if’:

      If you believe that the monetary system breaks (or: general mood) and money-printing (QE) is resumed: buy every financial asset you can get which will rise with inflation (should be something like energy/water/food/defense contrators).
      Sell everything if noone likes this inflation and start buying physical gold. Think about leaving the country/continent/planet.

      These are basically the 2 main directions.
      You can even go and use leverage if you absolutely know what will be done.
      What noone can take from you: you can decide.
      Whatever you do will be your mistake :)

      I’ve sold my financial assets but not my home (Germany) because my wife wouldn’t allow it. Kept everything in cash. Should have gone into dollars 1 year ago.

  14. JayW says:

    Like it or not, it was a pivot, albeit a very short one.

    • Wolf Richter says:

      Only in your pivot fantasies, LOL

      • JayW says:

        A pivot is when the central bank has to change directions for any reason or for any length of time, long or short. At some point, something in the US financial sector may break next year. If it’s a big enough BOOM, then the Fed will be forced to pivot probably for a much longer period than two weeks. It doesn’t matter if the pivot is for two weeks or 2 years. It’s a pivot (aka change in plan / policy). Had the BoE not pivoted for two weeks, a lot of pensions, etc may have become insolvent. Then, they pivoted back to QT.

        • Wolf Richter says:

          But the BOE hasn’t changed direction at all, rate hikes are on track, QT is on track (maturing securities coming off the balance sheet, which started in March), the only thing it “delayed” by a month was selling bonds outright, which no central banks does yet anyway.

          So you get to decide when there is a pivot, and what the BOE does and says is irrelevant just to humor you? Fine with me. Enjoy your pivot fantasy, but in the privacy of your own home.

        • Venkarel says:

          Under this logic there would be two (at minimum) pivots for a short term buying window. One to more accommodating policy, then one back to restrictive policy.

      • JayW says:


  15. Bobber says:

    The way this market spites the Fed with these little rallies….it reminds of that scene in Casino when a guy swore at Joe Pesci, while the guy had his head in a vice.

  16. LordSunbeamTheThird says:

    Maybe market panic was avoided, but QT should have been performed BEFORE raising interest rates because the interest rate burden should have been carried by the UK government, and defrayed through the tax system in a way society has oversight of.

    Using interest rates to compensate for the inflation creates two groups, those that benefited from the printed funds and repressed price signals , and the other group that are forced into additional interest repayments to moderate the inevitable inflation. The groups don’t overlap.

    In the UK, university students who carry government loans are asked to carry additional interest rate charges to cover the inflation caused by printed funds going, as always, to the financial sector. The UK government still owns half of the bank NatWest for example. Mortgage rates also going up. Its not clear that specifically students or people entering mortgage agreements to live somewhere are specifically the beneficiaries of QE and that they should be effectively targeted to go without to control inflation.

    I suppose this is just another way of saying its not fair and its all rotten which everybody knows anyway.

    btw Phleep makes an excellent point, the British empire was -always- based on finance, and early victories against numerically superior opponents was entirely due to Britain being able to raise dramatically more military funds having an already mature financial system. The financial sophistication that defrauded the Malays of their rubber plantations, or the requirement for the Indians to use fiat Council Bills for export, or the repossession of Rhodesia etc. And this is still the same system going on today.

    • VintageVNvet says:

      wrong about why the brits prevailed:
      brits prevailed against the Scots because the english were willing to be SO much more callous, as is clearly explained in many ”historical fictions” that tell the whole story
      brits prevailed against the Irish similarly
      brits prevailed against any other sea power, including the Spanish and French because the brits were willing to, and did follow the dictum(s) of Nelson
      ALL, repeat ALL of the eventual successes of the Brits can be clearly traced to these policies and practices…
      Very clear to see in various and sundry and extensive ”histories” and the very much more informative ”historical fictions” some based on the actual ”logs” of brit ships, etc.

      • Escierto says:

        Why do you keep using the word Brit when you actually mean the English?

        • VintageVNvet says:

          Many of the heroes of the British military and naval forces of the era, approximately late 17th to mid 20th centuries, were of Irish and Scots origin E.
          The writings of Patrick O’Brian, as well as others make this very clear.

        • Escierto says:

          While it is correct that many members of the Gaelic peoples have served with distinction in the British armed forces, let’s be clear when we talk about the oppression by the ENGLISH against those same peoples. The Scots, Irish, Welsh and Cornish are NOT and never will be English.

  17. Evan says:

    Greetings! I have just returned from a time traveling trip far into 2023, where I can report that interest rates are still far below inflation rates.

    Yes. This is a big surprise, I’m sure. Inflation, somehow, just didn’t disappear. The process of kicking the can down the road continues. It is perhaps also a huge surprise to hear that this absurdity continues to be rationalized as a necessary cushion for markets, who are now on their 14 month of being coddled and indirectly subsidized, least they take their losses and adapt.

    • DawnsEarlyLight says:

      Screw the rates, what’s the power ball number!?!

    • Old school says:

      I think that might be part of the central bankers plan. I don’t think any developed country was able withstand real rates since the GFC. That had some perverse incentives like a house costing a million dollars or pounds or Australian dollars in some cities.

      Real rates are still going to be negative but Powell is getting the world off zero, but real rates probably going to average more negative than before and asset bubble will be popped.

  18. NARmageddon says:

    LDI (liability-driven investment) = when (typically) pension funds make risky bets to try and make up for a shortfall in their assets relative to their liabilities.

    • sunny129 says:

      Don’t forget it was recommended by British regulators to make up for the short.

      LDI is another name leverage in the range of 7x-10x.
      The end game should be bankruptcy but doubt they will allow.

    • Old school says:

      I expect some US pensions to start croaking if Powell keeps tightening. I mean we just had one of the greatest bull runs in the stock and bond market and some came into 2022 in poor shape and projecting 7% returns as far as eye can see.

  19. tannin says:

    Yet to see the results of rate hikes from 6 months back…..allow for some lag time people. U.K. in deep doodoo, seriously limiting ability to QT… everyone, few, if any, agree with me….we’ll see. Btw Wolf, was it a quick 18 billion spent to prop up gilt mkt, and you’re saying 75 million gilt sale shows no pivot will be tolerated by BoE…..I’d say, that’s what the sale is intended to message, and reality will dog their every move….ghastly economic situation ‘over there’, and govt intends monetary squeeze….I’m still saying, only enough QT, just barely enough, to keep currency traders on side.
    Someone here mentioned pensions……we may hear a lot more about broken pension schemes, in the U.S. for sure, maybe more from U.K. ( BoE gave them a ‘save’, and a few days to ‘get onside’…..who knows the losses up till then, and their ability to successfully ‘get on side’…and if so, at what cost ).
    Lots of reasons to slow to near halt rates increases/QT, first and foremost, let what’s already done take affect…..all just imho, of course.

  20. Yellowknife Jack says:

    As always – thank you for clearing the fog on this Gilt/Tax/Pension fund BS
    Your summary below says it all –

    “Governments cannot run out of money in their own currency (they can always print more). But they can destroy the purchasing power of that currency, and that’s the problem now (inflation). So central banks are hiking rates and doing QT to bring this inflation down. Raging inflation destroys an economy, and central banks know that.”

    My version of the game
    the goal is to inflate our way out of this problem over time – but not to blow up the economies of the world in the short term

    thanks for keeping us aware of what is going on
    Fed(s) actions reminded me of some great lyrics

    Just a little pinprick
    There’ll be no more
    But you may feel a little sick
    Can you stand up?
    I do believe it’s working, good
    That’ll keep you going through the show
    Come on, it’s time to go

Comments are closed.