BoE's Tenreyro says gilt sales unlikely to have big economic impact

BY Reuters | ECONOMIC | 07/05/22 01:45 PM EDT

LONDON, July 5 (Reuters) - Active sales from the Bank of England's more than 800 billion pounds of government bond holdings are unlikely to have a material economic impact, Bank of England policymaker Silvana Tenreyro said on Tuesday.

"I wouldn't expect the effect of the unwind, of QT (quantitative tightening), to have a material impact on the economy. So far our experience with the beginning of the shrinking of the portfolio is consistent with that," Tenreyro said at a conference hosted by King's Business School in London.

Since February the BoE has not reinvested the proceeds of government bonds that have matured from its portfolio. BoE staff are due to report to the Monetary Policy Committee on options for active bond sales next month. (Reporting by David Milliken; Editing by Mark Porter)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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