The Bank of England's quantitative easing programme went off without a hitch this afternoon, allaying fears Threadneedle Street may need to change tact.
In the Bank's second round of buying super-long-term government bonds, investors offered to sell £3.1bn to the Bank - 2.67 times the amount it needed to buy.
Last week, the Bank fell £52m short in its search for sellers, an event which caused the price of bonds to shoot higher. There were no such hitches today, however, with the Bank buying £1.17bn worth of government debt with a maturity of more than fifteen years with a healthy cover ratio. The Bank did have to pay up, however, offering sellers a higher price than the current market rate.
As part of its new quantitative easing programme, the bank buys bonds in three different weekly auctions which take place on Mondays, Tuesdays and Wednesdays. It buys different kinds of bonds on different days, with Tuesdays — the day when bonds with a shelf life of more than 15 years are snapped up — always expected to be the trickiest.
Investors may have been soothed by the fact they will be able to snap up a fresh issue of long-term government debt in the latest official auction tomorrow morning, and encouraged to offload to the Bank today with the chance of getting a better price tomorrow.
The Bank of England is pumping £60bn of newly-minted cash into the economy through the extension to its government bond-buying programme. The mechanics of how it actually goes about the programme were relatively obscure and of little interest outside the money markets until last week's dramatic failure.
It was the first time the Bank has ever fell short of finding enough sellers to buy government bonds — which it buys from the secondary market, rather than directly from the government.
The market reaction was initially panic, with yields — which move in the opposite direction to prices — crashing down. However, experts put the failure down to a curious mix of timing, a quiet August, and a lack of preparation from financial markets — who weren't in "QE mode".
The £60bn package was just one strand of Mark Carney's economic salvo, launched earlier this month, to save the UK economy from a Brexit-induced recession. He also slashed interest rates to a new all-time low of 0.25 per cent, promised to buy £10bn of corporate bonds in the biggest ever programme of its kind undertaken by the Bank, and dish out £100bn in new money to the UK's top banks to make sure they carry on lending.