Bond investors focus on Bank of England’s quantitative tightening plans

The Bank of England just gave bond investors something they rarely get from a central bank: a clear, decade-long schedule for shrinking its balance sheet. The Monetary Policy Committee voted unanimously to redesign its quantitative tightening program, laying out a plan to unwind £488 billion in gilt holdings by the end of 2034 at an average pace of £46 billion per year. That is a meaningful deceleration from the prior annual target of £70 billion, and the market’s initial response tells the story. UK government bonds rallied, long-term yields dropped, and the pound softened slightly. What the new plan actually looks like The MPC’s framework splits the remaining gilt portfolio into three buckets, each with a distinct treatment. First, £222 billion worth of gilts that mature by 2035 will simply roll off passively. No sales needed. The bonds expire, the BoE collects its principal, and the balance sheet shrinks on autopilot. Second, £146 billion in gilts will be actively sold at a pace of £20 billion per year. Notably, some of these sales may bypass open-market auctions entirely, with the BoE transacting directly with the Debt Management Office. Third, £120 billion of the longest-dated...