Has the BoE supersized QE?
QE by the Bank Of England in Q2 was enormous ! They bought a staggering £235m / bp. The graph below shows qtr by qtr DV01 bought by the BoE over the last 10 years. (forward curve risk buckets are shown by colour, data BoE, analysis CRZ ). That means that for every 0.01% move in yields the value of Gilts bought from the market in Q2 changes by £235m. Notwithstanding, that something needed to be done to restore a functioning market mid-March, we should maybe question (as Paul Tucker does here ) if this scale was truly justified by the economics. Is it a surprise that the curve is locked at rock bottom [flat] and not [yet?] responding to the deteriorating fiscal position? However, as the OBR points out, “... higher public debt also increases the sensitivity of the public finances to higher interest rates, increasing the risks from pursuing a fiscal strategy that assumes that financing conditions will remain favourable over the longer term”. The graph below shows the historical re...
