Watch out for Bank of England's QE auction ahead

Yesterday was a good day and tomorrow will again be a good one, but today remains the challenging for the Bank of England (BoE). Yesterday it was able to purchase £1.17 billion as targeted but that was short term bonds for which offer remains relatively plenty. It received offers almost thrice the size of the purchase. Its all short term auctions were more than successful.

However, trouble lies with Tuesday, when the Bank of England (BoE) tries to purchase long-dated bonds from the secondary market. The Bank of England is purchasing short-dated bonds on Monday and Wednesday and long-dated ones on Tuesday.

In the very first week, its purchase of long-dated gilts fell short of the target of £1.17 billion by £52 million. The second week was smooth as it received offers more than 2.67 times of the target, however, in the second week; a fresh supply of £1.25 billion long-dated bonds hit the market. So investors, who sold to BoE, could have refilled their inventory. But no such auctions are scheduled this week.

We think the auction would be successful but not without higher prices.