Tilt and run again - Bank of England is selling corporate bonds

3 minute read

The Bank of England (BoE) has started the process of Quantitative Tightening; they have been selling corporate bonds since late September and ran the first gilt auction this week.

Given the BoE’s commitment to greening their holdings, the portfolio tilt will be accelerated through these bond sales.

The corporate bond portfolio is sized at £13.6bn and is being sold between Q4 2022 and early 2024. The BoE has made a commitment to green their corporate bond holdings, with a target initially to reduce the weighted-average carbon intensity by 25% by 2025, but ultimately to achieve net zero emissions within the portfolio by 2050.

The mechanism of differentiation will initially be to tilt holdings towards better performers in each sector, by adjusting the price the BoE is willing to pay for the debt of a given company.

Given the BoE has made a clear near-term target for reducing carbon intensity, and has now begun to sell bonds, the portfolio tilt will be accelerated.

We present the highest emitting issuers per sector within the holdings of the Corporate Bond Purchase Scheme, and their recent performance which shows the impact of QT flows to date.

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