Expert warns BoE bond swap may not appeal

An investment expert has cast doubt on the effectiveness of the government’s plan to swap mortgage-backed securities for government-guaran- teed bonds.

Steven Khan, a freelance consultant and former head of residential trading at Goldman Sachs, says the scheme, set to be launched by the Bank of England within weeks, may have unappealing terms.

Khan says: “The government has not specified the terms for the purchases and they may be unappealing because it won’t want to take on too much risk.”

But he adds the move could alleviate the pressure on banks by injecting liquidity into the market.

Khan says a research report from a leading accountancy firm recently claimed that around £25bn of specialist mortgage-backed assets is sitting on banks’ balance sheets.