The Bank of England is likely to spend 10-15 billion pounds ($14-$21 billion) buying corporate paper, leaving it 60-65 billion pounds to spend on gilts, John Wraith of RBC Capital Markets said in a note to clients.
Wraith, head of sterling rate strategy at RBC, said he attended a meeting at the BoE along with representatives from other Gilt Edged Market Makers on Thursday after the BoEs announcement on its quantitative easing programme.
The BoE said on Thursday it would spend 75 billion pounds purchasing gilts and other assets with newly created money to combat recession. It said it expected the bulk of this amount to be spent on gilts.
Wraith said it was his view that: "They (BoE) expect the corporate paper facility to see no more than 10-15 billion pounds of bonds delivered to them," Wraith said. "This implies 60-65 billion pounds of gilt purchases over the next three months." He also said the BoE was eager to spend the money as quickly as possible.
The BoE had no immediate comment. "Paying over the odds was clearly not a concern for them, and if thats the price they have to pay to get things moving, they are fully prepared to do so," Wraith said.
"If early auctions see strong squeezes and clearing levels even higher than those going in, potentially significantly so, they may well get their wish to increase auction sizes, get the money in quicker than expected, and drive prices up substantially."