PERU: BCRP Seen On Hold, But Further Easing May Be Considered

• The BOE has estimated that the APF programme has lowered issuance costs by GBP50-125bln in NPV terms, with "only about half of this benefit realised to date, given the UK's long debt maturity structure."
• There are a number of assumptions going into this on where yields would otherwise have been (and always where interest rates will end up in the future and the pace of future APF rundown). But the purpose of this exercise is not really to give the gilt market any additional clarity or even to help with any Budget calculations. It is more to head off increasing political pressure that the Treasury should not be indemnifying the BOE's APF holdings and to reduce the political pressure that has been building as instead of the Treasury receiving a quarterly payment from the BOE, it is now making a quarterly payment (which is quite substantial). Reform UK has been particularly scathing around this process.
• More details are in the BOE's quarterly APF report here.
• Separately, there has been an decrease in the APF size limit agreed in a letter exchange between Governor Bailey and Chancellor Reeves. This is completely in line with usual practice and generally happens every 3-6 months after there has been a large redemption. It has no bearing on APF operations at all, unless the BOE wanted to restart QE. Even in this scenario, it usually is just a letter from the Governor to the Chancellor including the reason and creates little overall delay. The letter exchange is available here.

• SFIX5 96.20/96.25/96.30/96.35c condor, sold at 4.25 in 3.5k.
• SFIM6 96.85/97.00/97.15c fly x2 vs 96.30/96.00ps, bought the fly for -0.25 in 7.5k x 3.75k.

SX7E (19th dec) 250/260cs, bought for 2.35 in 3k.