Sept 19, V7N - On Thursday, the attention of market participants is likely to shift from the Bank of England's (BoE) interest rate decision to its plans for reducing its balance sheet of gilts, which expanded significantly during the pandemic. Analysts anticipate that the BoE will target a reduction of £100 billion ($132 billion) over the next 12 months. This move could provide a significant boost to the bond market, as it would represent a 75% decrease in active gilt sales, largely due to a substantial amount of maturing debt that will automatically roll off the balance sheet.

Market Reactions and Broader Economic Context

In addition to the BoE's actions, there has been a notable decline in Chinese bond yields, driven by expectations that Beijing may soon announce further policy easing to support its struggling economy. This development has positively influenced stock markets in Hong Kong and China, which have reversed early losses and are trading higher in anticipation of additional stimulus measures.As the BoE prepares to announce its rate decision, the implications of its balance sheet reduction strategy will be closely monitored, particularly in the context of ongoing economic conditions and inflation trends. The central bank's approach to managing its gilt holdings will play a crucial role in shaping market dynamics in the coming months.

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