The Corporate Bond Purchase Scheme (CBPS or the Scheme) was launched in August 2016 and expanded in 2020.
At its February 2022 meeting, in light of economic conditions, the Monetary Policy Committee (MPC) increased Bank Rate to 0.5% and voted to commence the unwind of the Asset Purchase Facility (APF).
With regards to the CBPS, the MPC voted for the Bank of England to: “begin to reduce the stock of sterling non-financial investment-grade corporate bond purchases … by ceasing to reinvest maturing assets and by a programme of corporate bond sales to be completed no earlier than towards the end of 2023 that should unwind fully the stock of corporate bond purchases.”
This Market Notice sets out the Bank’s high-level approach to the programme of CBPS unwind as requested by the MPC, including guidance on when sales will commence.
In designing a sales programme consistent with the MPC’s instructions, the Bank has taken a number of considerations into account including:
- designing a programme of sales that is responsive to prevailing market conditions and aims to limit any disruption to the functioning of the sterling corporate bond market; and
- managing risks to public money by continuing to monitor the credit quality of the portfolio, and by designing sales with regard to portfolio characteristics including concentration, liquidity and – to the extent consistent with wider aims – climate considerations (or “greening”).
Operational details
The Bank intends to begin its programme of corporate bond sales in the week commencing 19 September 2022, subject to market conditions at the time.
A further Market Notice – containing full operational details – will be published in August.
The start of the sales programme will be confirmed in August and, separately and in line with the Bank’s usual approach, each sales operation will be confirmed via an announcement on the Bank’s wires services around one week in advance.
Type of sales operations
The Bank will conduct sales via regular multi-stock auctions run via the Bank’s electronic tendering system, Btender, with detail on frequency to be published in August.
Pace of sales
Given the aim of limiting any market disruption, sales are intended to be gradual but responsive to conditions. That means the pace of sales is likely to fluctuate over time. Nonetheless, in line with the MPC’s instructions the Bank will aim to complete sales at the end of 2023, or in early 2024, subject to market conditions.
The bonds available for sale in any particular auction will be selected to ensure supply to the market is gradual. In addition, ahead of each auction the Bank will publish the maximum size of holdings in each selected bond which will be available for sale.
Eligible bonds & allocation of bids
Today, the Bank is updating the list of issuers held in the CBPS and publishing a list of the individual corporate bonds which will be available for sale. This can be found on the Bank’s website.
In deciding which bonds can be sold on a given day, and in calibrating which bids are accepted in an auction, the Bank will have regard to the ongoing diversification of the portfolio across factors including sector shares, greening and the liquidity of holdings.
Because the sales process will ultimately entail selling all of the Bank’s holdings of corporate bonds, the Bank will not target specific sector shares at points in time. Information on sector shares will therefore no longer be published during sales.
Treatment of short maturity bonds
Only bonds that mature on or after 6 April 2024 will be eligible for sale via auctions in the first instance.
The Bank expects to hold any bonds that mature on or before 5 April 2024 to maturity; however participation in any Open Market Tenders launched by issuers will be considered.
The Bank will keep this maturity limit under review, and reserves the right to adjust it as required. The Bank is publishing information on the maturity profile of the portfolio alongside this Market Notice.
Alternative methods of sale
The Bank will keep the method of sale under review, and reserves the right to use other approaches as required.
At this time and throughout the sales programme the Bank is open to receiving expressions of interest from issuers who may wish to buy back their own bonds. This applies to all bonds held in the CBPS, including those maturing on or before 5 April 2024. Further information on how to submit expressions of interest can be found on the Bank’s website. In addition, the Bank will consider participating in any Open Market Tenders launched by issuers throughout the duration of sales.
As the Bank undertakes detailed design and calibration work ahead of the August Market Notice, staff will continue to engage with relevant market participants and stakeholders – including existing CBPS counterparties and issuers – to benefit from their perspectives on how the aims of the sales process can best be achieved.
Eligible counterparties and applications
The Bank will sell sterling denominated bonds via firms that the Bank is satisfied are market makers in such securities and are counterparties in its Open Market Operations. Counterparties must have access to the Bank’s electronic tendering system, Btender, in order to participate in CBPS auctions.
Those wishing to participate as counterparties in the sales of the CBPS must complete the Expression of Interest for the CBPS available on the Information for applicants page and submit it by email to Applications@bankofengland.co.uk. The Bank reserves the right to reject applications without explanation.
As a condition of participation in the Scheme, counterparties will be asked to send to the Bank quotes on eligible securities that are sent in the normal course of their business (‘dealer runs’) as well as indications of bonds which they would like to buy or take a position in (‘dealer axes’). Further details are provided in the APF Operating Procedures. Existing counterparties who were eligible for the 2021 reinvestment do not need to apply.
Participation will be governed by the Terms and Conditions for the APF.