BoE may slow long-dated gilt sales as QT pressure builds on UK bond market

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BoE gilt sales under review

Highlights

Bank of England expected to shrink its balance sheet by £50bn by September 2027, down from £70bn the previous year, with only £20bn coming from active gilt sales.
The BoE has sold just £4bn of its over £150bn long-dated gilt holdings in the past year, implying more than 24 years to unwind at the current pace.
With 30-year gilt yields hitting 5.87 per cent in May and weak demand for long-dated bonds, investors anticipate the BoE will further slow or halt such sales, shifting toward medium and short maturities.

QT plans and pressure on long-dated gilts

As reported by Financial Times, large bond investors see the Bank of England moving toward a slower pace of long-dated gilt sales as its quantitative tightening programme continues to test demand in a fragile part of the market. The central bank is expected to shrink its balance sheet by £50bn in the 12 months to September 2027, according to its latest survey of market estimates, after reductions of £70bn in the year to September 2026 and £100bn the year before.

Part of the projected £50bn reduction comes from maturing bonds, but the estimate still implies about £20bn of active gilt sales. The BoE has already reduced the share of long-dated gilts sold through QT, citing weaker demand for that part of the curve.

Ranjiv Mann, senior portfolio manager at Allianz Global Investors, says demand is softer for long-term bonds than for shorter-dated debt, based on BoE auction data. In the year to September, the central bank has sold just £4bn of the more than £150bn of gilts it holds with more than 20 years to maturity, with most of that concentrated in two ultra-long bonds.

At the current pace, fully unwinding those long-dated purchases would take more than 24 years. The holdings stem from waves of bond-buying that began after the 2008 global financial crisis and later expanded during shocks including the Covid pandemic.

Policy trade-offs and market implications

BoE policymakers face a difficult choice as they seek to preserve a process of gradual and predictable sales without appearing to respond directly to UK fiscal pressures. That sensitivity is heightened as a new prime minister and chancellor set out a fresh economic course for the UK.

At the same time, the central bank is under pressure not to add to stress in long-dated gilts after inflation fallout from the Iran war drove 30-year bond yields to 5.87 per cent in May, a 21st-century high. Tomasz Wieladek, chief European macro strategist at T Rowe Price, says a market-neutral and prudent approach would imply a reduction or even a cessation of long-dated gilt sales, given weaker pension fund demand for that debt.

Mike Bell, head of market strategy at RBC BlueBay Asset Management, says he expects the BoE to tilt sales toward medium and short maturities because of a structural decline in demand for long-end gilts. He adds that a full stop to long-dated sales would not be surprising.

If the BoE does suspend such sales, the move is likely to revive debate over whether it should retain a permanent gilt portfolio to support banks' liquidity needs, in line with approaches used by some other central banks. Sanjay Raja, chief UK economist at Deutsche Bank, says such a portfolio would provide a durable source of reserves as QT progresses and reduce reliance on short-term liquidity operations.

Our earlier article on the UK’s growth-and-fiscal-discipline debate explained why the next government is being urged to pair budget credibility with a clearer, consistently executed strategy to lift productivity and investment. It noted that inconsistent implementation and communication can undermine market confidence, risking structurally higher borrowing costs and weaker growth unless institutional reforms—especially around how the Treasury balances growth and fiscal mandates—follow.

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