Retarded question

[arabianights]

The BOE doesn't actually have to state that it's uniwning QE, does it?

 

[meanreversion]

I would think that this type of announcement will be done well in advance, in the style of Brown selling gold, POMO in the US, US govt selling its stake in Citi and so on.

Why don't they just keep their Gilts and let them slowly expire, that would be less disruptive.

 

[meanreversion]

Incidentally, the Fed is now the no.1 holder of US treasuries, ahead of China and Japan.

 

[Rhody Trader]

The BOE doesn't actually have to state that it's uniwning QE, does it?

I suppose it depends on whether they're doing it through portfolio maturity attrition or by actually selling the securities back into the market. The latter would probably require some kind of auction activity.

 

[Jack o'Clubs]

Rhody Trader is right. It would come out in the MPC minutes, and bond sales are likely:

From a BOE factsheet on QE:

"When it comes to tightening policy, the MPC will have two instruments available: raising Bank Rate; and selling back assets. Removing money from circulation can be achieved by selling the assets back to the private sector. The MPC will be likely to use a combination of raising Bank Rate and selling back assets, although the precise sequencing and the relative importance of the two instruments will be considered month by month at each MPC meeting. The Bank will seek to sell the assets it owns in an orderly fashion in order not to disrupt the market for government debt. "

 

[meanreversion]

Rhody Trader sounds dangerously like he knows what he's talking about... "portfolio maturity attrition"... like your style!

 

[JT_MOT]

I hope they also explain what 'uniwning' is when they do it.

 

[Martinghoul]

arab, remind me tomorrow about this question... I'll tell you.

 

[Black Swan]

arab, remind me tomorrow about this question... I'll tell you.

Another retarted question whilst you and others are present; if *we* can thoeretically 'get rid of' the effects of Q.E. through future inflation why cant *we* do the same with the ideological weapon of mass delusion that is the defecit and the huge UK stuctural debt?

 

[Jack o'Clubs]

You can inflate away the debt, but if anything the deficit would increase because spending would rise broadly in line with inflation while its doubtful that govt income would. By the way, its the deficit that's structural, not the debt (although that's a product of the former).

 

[Martinghoul]

Another retarted question whilst you and others are present; if *we* can thoeretically 'get rid of' the effects of Q.E. through future inflation why cant *we* do the same with the ideological weapon of mass delusion that is the defecit and the huge UK stuctural debt?

Well, I am not entirely sure what you might mean, but one reason is that a VERY large proportion of UK debt is inflation-linked. As to the budget deficit, I imagine it's also quite large in real terms (as opposed to nominal).

 

[DashRiprock]

i dont know answer to first question but what meanreversion makes sense about reverse reverse auctions LOL

the thins about letting them expire is that 1. except from a bit of commercial paper, its mostly > 3yrs duration? i mean they can do it that way but i dont reckon they will have bought the gilts with the expressed intention of them maturing in a specific order. as well its something thay have little control over

most likely you will just see minutes that say reducing qe purchaches fro 200 to 175 or something.

blask swans question i dont get at all, but there is funny post on macro man about who to REALLY solve the defecit problem

http://macro-man.blogspot.com/2010/12/tmm-solves-uk-structural-deficit.html

 

[Jack o'Clubs]

Well, I am not entirely sure what you might mean, but one reason is that a VERY large proportion of UK debt is inflation-linked...

No it's not, it's quite a small proportion, from memory less than a quarter.

 

[Black Swan]

OK, so *we* can be told by the govt when and how we're going to get our investment back in RBS & Lloyds/HBOS and how they're going to supposedly chip away at the defict by cuts etc..But how is the 500bl Q.E. to be paid back other than through kicking it into the long grass for generations to come? On that basis why aren't we as relaxed about the defict and the huge overall debt of a trillion plus? Also, please bear with me, why couldn't the govt of the day issue a bond of sorts to cover the other elephant in the room, public sector pension guarantees of circa 1 trillion?

 

[Martinghoul]

There's all sorts of ways they can do it, including reverse auctions, giving them to the DMO, etc.

The BoE is indeed unlikely to let their gilts mature, although that's definitely a possibility (it's likely what the Fed is going to do with the majority of their portfolio). It has the advantage of being the easiest solution. The disadvantage is that it looks very bad politically and encroaches on fiscal policy, which isn't a good idea.

As to reducing the purchases, it's a bit too late for that, as they're all done now.

 

[DashRiprock]

hi martingoul

thats sort of what i meant, reducing how much they hold from 200 to 175 by selling 25.

what do you think will be first? hike or sell-backs?

(afterwards: or, what would you look for in the minutes or q&a sessions that some might be sold off? I mean there is hawkish vs. dovish for hikes/cuts, but ive never been trading while QE before this so what is the language for that? "were p!ssed off having to carry all these bonds around"?

 

[Martinghoul]

No it's not, it's quite a small proportion, from memory less than a quarter.

This might be technically correct, if you calculate it on the basis of simple notional. However, such a calculation is irrelevant. In terms of all-in duration, it's smth like 40%, if memory serves. Generally, out of all sovereign debt issuers, UK has the highest proportion of index-linked debt.

 

[Martinghoul]

hi martingoul

thats sort of what i meant, reducing how much they hold from 200 to 175 by selling 25.

what do you think will be first? hike or sell-backs?

(afterwards: or, what would you look for in the minutes or q&a sessions that some might be sold off? I mean there is hawkish vs. dovish for hikes/cuts, but ive never been trading while QE before this so what is the language for that? "were p!ssed off having to carry all these bonds around"?

How about this? It's extremely unlikely that they will hike all the way to a "neutral" rate without selling their gilts. My central scenario is that they do a few hikes (one or two) and then start selling. As to the language, I think general hawkishness/dovishness stuff applies, since QE is just monetary policy to them. So they would probably try to do smth similar on the way out as they did on the way in. My guess is that it will be announced after one of the meetings and will be done in an orderly fashion.

 

[Martinghoul]

OK, so *we* can be told by the govt when and how we're going to get our investment back in RBS & Lloyds/HBOS and how they're going to supposedly chip away at the defict by cuts etc..But how is the 500bl Q.E. to be paid back other than through kicking it into the long grass for generations to come? On that basis why aren't we as relaxed about the defict and the huge overall debt of a trillion plus? Also, please bear with me, why couldn't the govt of the day issue a bond of sorts to cover the other elephant in the room, public sector pension guarantees of circa 1 trillion?

I don't really understand what you mean by "QE paid back"? QE is not an investment or a purchase, it's an instrument of monetary policy.

As to the other stuff, we're not relaxed about the deficit and the debt because we have seen Greece. We have witnessed the mkts take a possibility of sovereign default, bring it forward and, most likely, turn it into reality. Ultimately, a govt can only roll over debt and fund itself if there's a degree of confidence in its ability to repay these debts. The mkt, at the moment, believes that the UK pension liabilities, as monstrous as they may be, can be dealt with.

 

[DashRiprock]

How about this? It's extremely unlikely that they will hike all the way to a "neutral" rate without selling their gilts. My central scenario is that they do a few hikes (one or two) and then start selling. As to the language, I think general hawkishness/dovishness stuff applies, since QE is just monetary policy to them. So they would probably try to do smth similar on the way out as they did on the way in. My guess is that it will be announced after one of the meetings and will be done in an orderly fashion.

nice

so because on the way in it was "all cuts first, then slowly increase QE" that doesnt mean it will be "all reverse QE, then hikes". it will try to be a balance of the 2 not to much hikes or too little asset sales.

thanks martingoul