The Bank of England Just Learned a Lot About Bond Market Liquidity

The flipside of low interest rates is a bunch of investors reluctant to part with sought-after securities.

by Tracy Alloway

You can’t always get what you want.

On Tuesday, the Bank of England didn’t manage to buy all the gilts it wanted at a reverse auction — the first such shortfall since it began its bond-buying program back in 2009. The ‘uncovered auction’ happened as investors proved reluctant to part with their holdings of longer-dated U.K. government bonds and could create a headache for policy makers seeking to offset the economic impact of the Brexit referendum by lowering borrowing costs.

The central bank snafu sparked a lively discussion over whether the BOE is reaching Japan-like technical limits in its sovereign-bond purchases or simply suffering from a temporary summertime trading lull.

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