Amid bond market turmoil, the Bank of England is reportedly considering suspending the sale of long-term government bonds.

The Bank of England is considering halting the sale of its holdings of long-term government bonds, which could be a significant adjustment to its quantitative tightening (QT) program.

On September 15, The Daily Telegraph reported that officials from the Bank of England, the Treasury, and the Office of the Debt Managers have drafted a plan, but a final decision has not yet been made. The Bank of England's Monetary Policy Committee (MPC) will decide on the QT scheme for the next fiscal year this Thursday, and whether to continue selling long-term government bonds will be part of the discussion.

The market expects the Bank of England's balance sheet reduction over the next 12 months to fall to £50 billion , lower than current levels, with approximately £20 billion of that being actively sold bonds. The Bank of England has been implementing QT since 2022, reducing its balance sheet through methods such as not renewing maturing bonds and actively selling them.

Long-term government bonds currently account for about 20% of the bonds actively sold. This means that if the current pace and structure of sales are maintained, the sales volume of long-term government bonds over the next 12 months will be approximately £4 billion. If such sales are suspended, the maturity structure of the bonds in the Bank of England's active sales portfolio will also change accordingly.

This adjustment comes against the backdrop of continued pressure on long-term UK gilt prices. The Bank of England holds a significant amount of 20-year and 30-year gilts, purchased during the financial crisis and the pandemic. With the decline in long-term gilt prices, this holding is now facing substantial losses. The yield on 30-year gilts is currently around 5.9%, near its highest level since the 1990s.

For the Bank of England, whether to continue selling long-term government bonds requires a trade-off between its established QT (Quick Transaction) targets and the current bond market environment. If the sales are ultimately suspended, QT may still proceed, but the specific methods of balance sheet reduction will change.

The Bank of England's Financial Conduct Authority (MCA) will announce its QT plan for the next fiscal year this Thursday, and the market will use this information to observe the scale of the Bank of England's future balance sheet reduction and the structure of bond sales.

Risk warning and disclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.