Quantitative tightening

But there are some weird consequences here.

Like if the Bank of England decided it wanted to accelerate its QT for whatever reason, That would therefore change the debt management offices' need to issue new debt.

Like, one can drive the other because the DMO has to issue debt to buy back debt.

And it does make the line a bit blurry.

And that's

very clear in their mandate.

The point with QE and QT is that they are not fully independent from bank rate.

These are both tools.

Bonds... globally remain fragile.

As the US breaches 5% 10-year yields, the UK is now slowing quantitative tightening, which should be market positive.

And it's high time the Bank of England and the UK Treasury, which famously pretend the other doesn't exist, cooperate on issues around liability management to address the UK's debt pile, which is actually in much better shape than the right-wing press would have you believe.

Anyway, before I get started today, I do have an apology.

The Bank of England spotted their kerfuffle in bonds and are doing the right thing by slowing QT.

And the key issue for bond markets is how QT impacts demand supply pricing.

At current rates, UK quantitative tightening sales were about 22% of the size of new UK debt issuance.

And that's had a significant negative impact in terms of the higher yield on gilts.

Now, how does the Federal Reserve Bank control inflation? And there's two ways that they can control inflation.

The first thing that they can do is raise interest rates, and the second thing that they can do is something called quantitative tightening.

And to understand how this works, let's just take a look at what has happened over the last six years, because for anybody who is a financial nerd, the last six years were really a master class in how economics works.

The twenty twenty pandemic hit.

Well, the Federal Reserve Bank then started to raise interest rates to make borrowing money more expensive, the idea being that if people are borrowing less money, there's gonna be less spending to help calm the inflation down.

But that wasn't enough.

The second thing the Federal Reserve Bank did was QT, quantitative tightening, which is the opposite of quantitative easing.

Now, remember what I just said.