A few days ago we wrote about the possibility of the US Federal Reserve not reinvesting maturing bonds in its QE programme. Over time this would see the Fed’s portfolio of bonds reduce to zero (a very long time). This debate is about the reinvestment of maturities, but of course ignores those tricky little coupon things.

There are a whole load of technicalities around the administration of this, but it is in governments’ interests that the QE unwind happens slowly.


Let’s look at the UK. With the Bank of England (BoE) owning £435bn of gilts, Her Majesty’s Treasury (HMT) pays £15bn to the BoE.

If the BoE kept those coupons, the amount of bonds would compound by about £15bn a year, which, over time, would exponentially increase the nominal amount of bonds held by the BoE. This would lead to the BoE in essence being dominated by that relationship – which is not ideal for a central bank tasked with delivering independent advice.

Thus, the £15bn of coupons are sent back to HMT; a “round trip” that in essence means HMT has more money in its pot – and all of the political implications around that large dollop of money.

It is odd that this receives such little attention. It should be a charged and political issue given its enormity, but it gets lost in the vastness of QE.