June 20, 2012 / 10:47 AM / 7 years ago

UK debt chief says gilt market can cope with more QE

LONDON (Reuters) - A further round of stimulus from the Bank of England is unlikely to cause any disruption to the UK government bond market, Britain’s chief debt issuer said on Wednesday.

In an interview with Reuters, Debt Management Office chief executive Robert Stheeman also said that a disorderly outcome in the euro zone, could have knock-on consequences for primary dealers in gilts.

Stheeman’s comments came after minutes to the BoE’s June meeting showed four out of nine policymakers voted to restart the central bank’s quantitative easing programme earlier this month due to concerns about the euro zone and the likelihood that inflation would fall back quicker than they thought.

The Bank had purchased 325 billion pounds of gilts under its QE programme before it halted the scheme in May.

“More QE is unlikely to impact the smooth functioning of the gilt market,” Stheeman told Reuters on the sidelines of the Euromoney Global Borrowers and Investors Forum.

“At the moment, the market continues to grow - we continue to issue - and I see no signs that the liquidity of the market is such that would suggest that the BoE might have concerns,” he said. “The market has proved remarkably resilient to the emergence of a single, very large investor.”

Yields on UK government bonds have plunged to record lows in recent weeks as investors pile out of euro-denominated bonds into the relative safety of gilts.

Stheeman said he expected demand from overseas investors to remain strong, but he cautioned that an unruly outcome of the single currency zone’s crisis could have a negative impact on some Gilt Edged Market Makers, the primary dealers through which Britain sells its debt.

“That could be a major issue and we’re conscious of it. We’ve got to keep channels of communication as open as possible so we are in a position to react if necessary to changes in the structure of markets which could potentially cause us difficulty.”

“A disorderly outcome in the euro zone could have knock-on consequences for a number of our primary dealers,” Stheeman said. “But I would like to think it could therefore be that we’re just the market in which they want to operate.”

Reporting by Fiona Shaikh

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