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Investors bought up long-term UK government debt on Tuesday after Bank of England governor Andrew Bailey hinted that the BoE was considering slowing the pace at which it is selling its holdings of gilts.
UK 30-year gilt yields fell as much as 0.1 percentage points to 5.19 per cent after Bailey responded to mounting pressure on the BoE to scale back its so-called quantitative tightening programme.
Investors have said that QT is adding to pressure on the gilt market, which has driven long-term yields to their highest level this century in recent months. Yields move inversely to bond prices.
Bailey told CNBC that all options were “on the table” as BoE policymakers prepare to announce the path of QT for the coming 12 months in September.
“There has been a change in the liquidity of the curve at the long end and that has affected yields,” Bailey said.
Bailey’s comments are the latest sign that economic policymakers globally are responding to a sell-off in long-dated bonds by seeking to reduce their supply, which has soared as governments around the world borrow heavily.
The UK’s Debt Management Office moved this year to reduce the amount of long-term debt it sells to investors as part of the country’s regular borrowing programme, and Japan is considering doing the same.
Scott Bessent, the US Treasury secretary, said on Monday that it would not make sense to increase the share of long-term debt in Washington’s overall issuance given the current level of bond yields.
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“Why would we do it at these rates?” he told Bloomberg TV. “The time to have done that would have been in 2021 and 2022.”
The remarks fuelled a rally in US Treasuries, helping 30-year yields to a two-month low of 4.73 per cent on Tuesday.
Bessent has previously said any move to extend the average maturity of US debt would be “path dependent”, having been critical of his predecessor Janet Yellen for relying on short-term debt issuance to fund a ballooning budget deficit.
