Tuesday 9 August 2016 4:02 pm

Bank of England suffers bond setback as QE kicks off again

The Bank of England’s attempt to buy long dated gilts as part of its quantitative easing (QE) programme hit a rough spot today, with the central bank failing to attract enough offers from investors.

The Bank's reverse gilt auction was only 96 per cent covered – it had planned to purchase £1.17bn of government bonds with maturities longer than 15 years, but only managed to receive offers worth £1.118bn, leaving it around £50m short.

The Bank will have to make up the shortfall at a later date to fulfil its recently announced QE plans

Sterling, which had risen to slightly above $1.30 earlier today after dipping on concerns over more interest rate cuts and QE, has since dropped back down to $1.2984.

All the offers made in today's auction were accepted, with the Bank buying at "levels significantly above market levels", according to analysts.

"If it had come later into the programme it may have been more understandable," said Mitul Patel, head of interest rates at Henderson Global Investors.

"The fact that their first attempt to buy long dated gilts has failed raises significant question marks over whether the Bank of England will find enough willing sellers of gilts, to complete this round of asset purchases. Gilts have significantly outperformed other markets as a result, and the fall in gilt yields is likely to inflict further pain on pension schemes, insurance companies and banks."

The Bank will comment on today's auction tomorrow morning.