The Bank of England is reportedly considering a pause in the sale of its long-dated government bond holdings, a move that could mark a significant shift in its quantitative tightening (QT) programme.

According to a report, officials at the central bank, the Treasury, and the Debt Management Office have drafted plans for this potential adjustment, although a final decision has yet to be made. The Monetary Policy Committee (MPC) is scheduled to decide on next year's QT framework this Thursday, with the fate of long-dated gilt sales forming a key part of those deliberations.

Market forecasts suggest the Bank's balance sheet reduction over the coming twelve months could fall to £50 billion, below current levels, with active bond sales comprising roughly £20 billion of that total. Since launching QT in 2022, the Bank has shrunk its balance sheet through both allowing bonds to mature without reinvestment and active selling.

Long-dated gilts currently account for approximately 20% of the actively sold portfolio. Should the current pace and composition be maintained, that would imply around £4 billion of long-dated gilt sales over the next twelve months. A suspension would consequently alter the maturity structure of the Bank's active sale programme.

The backdrop to this consideration is sustained pressure on long-dated gilt prices. A significant portion of the Bank's 20-year and 30-year bond holdings were acquired during the financial crisis and the pandemic, and these positions now face substantial losses as prices have fallen. The yield on 30-year gilts stands at roughly 5.9%, the highest level since the 1990s.

For the Bank, the decision on whether to continue selling long-dated gilts requires balancing its stated QT objectives against the current bond market environment. Even if such sales were paused, QT could still proceed, though the specific method of balance sheet reduction would change.

The MPC is due to unveil its QT plans for the coming year on Thursday, with markets closely watching both the scale of future balance sheet reduction and the structure of bond sales.