Gilt Market Operations – Market Notice 10 October 2022

Market Notice

Against the backdrop of an unprecedented repricing in UK assets, the Bank announced a temporary and targeted intervention on Wednesday 28 September to restore market functioning in long-dated government bonds and reduce risks from contagion to credit conditions for UK households and businesses. 

As previously announced, the Bank plans to end these operations and cease all bond purchases on Friday 14 October.

In the final week of operations, the Bank announced today additional measures to support an orderly exit from its purchase scheme, including that it will stand ready to increase the size of its daily auctions.

To date, the Bank has carried out 8 daily auctions, offering to buy up to £40bn, and has made around £5bn of bond purchases. The Bank is prepared to deploy this unused capacity to increase the maximum size of the remaining five auctions above the current level of up to £5bn in each auction. The maximum auction size will be confirmed each morning at 9am and will be set at up to £10bn in today’s operation.

The Bank’s existing reserve pricing mechanism will remain in operation during this period. As confirmed in the 3 October Market Notice, the reserve spread is reviewed ahead of each auction to ensure consistency with the backstop nature of the scheme. In doing so the Bank takes into account a wide range of information on prevailing market conditions and the pattern of demand in its auctions. More information on the Bank’s reserve pricing approach is available on the Bank’s website and in the Annex below. This information was published on 5 October and remains unchanged

As set out previously, all purchases will be unwound in a smooth and orderly fashion once risks to market functioning are judged to have subsided.

Other than as amended by this Market Notice, the Market Notices published by the Bank on 28 September 2022 and 3 October 2022 will apply.

Annex – Reserve pricing

Consistent with the objective of these operations, the amount of gilts purchased each day is variable based on demand.

The Bank’s allocation methodology is not based on absolute price or yield, or the identity of the seller. As set out from the start of the programme, because the operations are designed to act as a backstop the Bank sets a ‘reserve spread’ which is used to calculate a yield for each bond below which the Bank will not make purchases. This reserve spread is set as a spread (in basis points) to the market mid yield at the end of each auction. 

The Bank allocates or rejects each offer (i.e. deciding which specific purchases are made in an auction) by comparing the spread between the yield it is offered and market mid-yields at the end of the auction, with the Bank’s reserve spread. Offers below the reserve spread are rejected. 


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