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30-08-2023, 07:52 PM
PUBLISHED WED, AUG 30 20232:42 AM EDTUPDATED 3 HOURS AGO
Elliot Smith
The Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”
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In late July, the central bank estimated that it would require the U.K. Treasury to backstop £150 billion ($189 billion) of losses on its asset purchase facility (APF).
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Imogen Bachra, head of U.K. rates strategy at NatWest, said the hit to public finances — and therefore to the government’s coffers — is two-fold.
“On one hand, QT loses money because the Treasury takes the BoE’s losses when gilts are sold at a lower price than paid. This was expected: the BoE bought bonds in a falling rate environment due to disinflation, while ‘success’ was to be defined by reflation and so higher rates,” Bachra said in a recent note.
“On the other hand, though, while QE gilts are not sold, the BoE pays Bank Rate on the ~£900bn reserves it created to buy them. The higher Bank Rate rises, the more costly this interest expense becomes.”
https://www.cnbc.com/2023/08/30/bank-of-...ected.html
Elliot Smith
The Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”
......
In late July, the central bank estimated that it would require the U.K. Treasury to backstop £150 billion ($189 billion) of losses on its asset purchase facility (APF).
......
Imogen Bachra, head of U.K. rates strategy at NatWest, said the hit to public finances — and therefore to the government’s coffers — is two-fold.
“On one hand, QT loses money because the Treasury takes the BoE’s losses when gilts are sold at a lower price than paid. This was expected: the BoE bought bonds in a falling rate environment due to disinflation, while ‘success’ was to be defined by reflation and so higher rates,” Bachra said in a recent note.
“On the other hand, though, while QE gilts are not sold, the BoE pays Bank Rate on the ~£900bn reserves it created to buy them. The higher Bank Rate rises, the more costly this interest expense becomes.”
https://www.cnbc.com/2023/08/30/bank-of-...ected.html
