Fund managers press BoE to suspend gilt sales amid market strain

Top fund managers supervising more than $1.5 trillion in assets have called on the Bank of England to halt its active sales of gilts, warning that current policy is aggravating stress in UK government bond markets. The appeal arrives amidst a sharp rise in yields and renewed pressure on public finances.

In a letter seen by Reuters, major fixed income investors argue that the Bank’s quantitative tightening (QT) is “making the problem worse, not better,” and that continuing gilt disposals will likely exacerbate yield volatility.

The concerns reflect the scale of market dislocation. Yields have climbed sharply in recent sessions, with some long‑dated gilts seeing increases of up to 70 basis points relative to prior levels, exceeding the pace of comparable movements in U.S. and eurozone debt markets.

Mark Dowding, CIO of fixed income at RBC BlueBay, told Reuters: “Many investors including ourselves have been saying … stop doing this.”  He and others argue that the Bank’s aggressive bond sales are feeding a negative feedback loop, whereby rising yields force higher debt costs, which in turn aggravate gilt market fragility.

The Treasury meanwhile faces a mounting interest burden. Some estimates suggest that losses from bond operations could cost taxpayers as much as £22 billion annually, although the Bank contends that net cash flow benefits from prior operations remain positive at around £34 billion since 2012.

The timing of the appeal is politically delicate. The government must issue further debt ahead of the autumn budget, and any signals of reduced central bank backing could unsettle investor confidence. Some analysts believe the BoE may be forced to scale back or suspend QT operations ahead of next month’s statement.

Advocates for maintaining gilt sales argue that halting QT could signal volatility in inflation credibility and erode discipline in public finances. But the vocal investor coalition claims that continued sales risk undermining funding stability altogether.

In the coming days, markets will closely watch any changes in language from the BoE and the Treasury. Adjustments to the pace or magnitude of gilt sales could materially affect the cost of borrowing and the fiscal outlook.