Last week, gilt yields plunged to all time lows shortly after the BOE encountered an unexpected failure in only its second post-QE restart buyback operation (or “POMO”), focusing on bonds with a 15Y+ maturity, where it was unable to find enough willing sellers to fill its £1.17 billion daily purchase quote, leaving the operation only 0.96 covered, meaning there was a net shortfall in the amount of bonds the BOE had hoped to buyback.
And while subsequent operations, all of which took place in shorter maturity bonds, met the minimum 1.00x coverage ratio, all eyes were on today’s buyback operation, to see if the fireworks from last week would repeat. They did not.
As the BOE revealed on its website moments ago, the BOE buyback across the 15Y+ sector saw the offer-cover ratio rise to 2.67x after being uncovered at 0.96x last
week. More notably, the bank bought most bonds at a discount of 7p-45p, with just three issues bought at a premium of 1p-9p. This is one indicator that the bond market was closely watching, not only because one week ago the bonds were bought at significant premium, but to see just how willing sellers are to part with higher yielding paper, and at what price.
As a result of today’s successful operation, Gilt futures slid and yields jumped, as the much-favored QE spot on the curve, 15-20Y sector, continued to lead losses.
via http://ift.tt/2b1lbNx Tyler Durden