BOE failure to buy bonds today was a look into the future
Two days after launching a new program to by 60 billion pounds of gilts, the Bank of England already has a problem.
The aim today was to buy 1.17 billion pounds of gilts but it fell short at 1.15 billion. At the moment, it's a minor technical problem but a lack of bonds to buy will be an increasingly real issue.
The ECB and the BOJ are at the front lines. The ECB is expected to deal with increasing supply constraints. When they first set out QE rules, they were strict on how much of any issue they could own. Those rules have been loosened in the quest to find 60 billion euros a month in bonds to buy. Most analysts expect them to be loosened further along with plans to broaden the world of eligible assets.
If anything, the market tells the story. Bonds trading with negative yields are a sign that central banks are buying and pensions/insurance companies can't sell because of regulatory rules.
The ECB had hoped that buy pledging to buy things like ABS and covered bonds it would stimulate issuance in those markets. That hasn't happened.
The WSJ writes about a similar problem in the UK, where the BOE has pledged to buy 10 billion pounds of corporate bonds over the next 18 months.
"It would be tough to buy more than £1 to £2 billion a quarter," said Mike Amey, head of sterling portfolio management at Pimco. "The challenge is the U.K. corporate bond market is not that big."
