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Home > News and Publications > Summary of Quarterly Bulletin Spring 2006

Summary of Quarterly Bulletin Spring 2006

13 March 2006


Each article is available as a separate pdf file; click on the appropriate title to access the relevant file. Alternatively you may download the complete issue (3.7mb).

Markets and operations (1.2mb)
This article reviews developments since the Winter Quarterly Bulletin in sterling and global financial markets, in market structure and in the Bank’s balance sheet.

Research and analysis

Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.

New information from inflation swaps and index-linked bonds (483k)
(By Matthew Hurd and Jon Relleen of the Bank's Monetary Instruments and Markets Division). Prices of index-linked financial instruments can be used to obtain market-based measures of inflation expectations and real interest rates. These measures are regularly used by the Bank's Monetary Policy Committee to inform its assessment of economic conditions. In the United Kingdom, the index-linked gilt market is long established and has been used to infer such measures for many years. More recently, international index-linked markets have developed further, with increased issuance of index-linked bonds and greater use of index-linked derivatives. This article outlines how new market data provide useful additional information. We show that inflation swap rates can be used to estimate market expectations of inflation, and how the larger range of information from index-linked markets facilitates analysis of market-based expectations for inflation and real interest rates across countries.

The distribution of assets, income and liabilities across UK households: results from the 2005 NMG Research survey (562k)
(by Richard Barwell of the Bank's Inflation Report and Bulletin Division and Orla May and Silvia Pezzini of the Bank's Systemic Risk Assessment Division). This article summarises the key results from the latest survey carried out for the Bank by NMG Research about the state of household finances. A relatively small proportion of households accounted for a large amount of the assets owned, income earned and debts owed by the whole sample. The majority of households appeared to be comfortable with their finances. But there were a small number of households who appeared to be in distress: typically they had below-average incomes and no or not many assets to draw on. The proportion of the sample in financial distress was little changed from a year earlier. The survey indicated that very few people viewed bankruptcy as a solution to debt problems.
The raw survey data are available in Excel format. (1.8mb)

Understanding the term structure of swap spreads (547k)
(by Fabio Cortes of the Bank's Foreign Exchange Division). Market expectations about the future path of interest rates can be derived from both government bond and swap yield curves. But at times these curves may provide imprecise signals about interest rate expectations. Understanding what factors can affect the term structure of swap spreads - the difference between government bond rates and swap rates at different maturities - may therefore be helpful to policymakers when interpreting market views of future interest rate developments.
This article reviews past developments in dollar, euro, sterling and yen government bond and swap markets and considers the potential influences on the term structure of swap spreads. Using statistical analysis, it finds that some influences seem to be common across international markets, but others, such as liquidity or preferred habitat issues, tend to be specific to certain markets.

The information content of aggregate data on financial futures positions (327k)
(by Caroline Mogford of the Bank's Sterling Markets Division and Darren Pain of the Bank's Foreign Exchange Division). This article uses statistical analysis to investigate the strength of any empirical relationships between data on speculative financial futures positions and movements in asset prices. It finds strong evidence that speculative positions do indeed tend to move closely with changes in the underlying asset prices. But there is little support for the view that these positions data systematically inform about future changes in asset prices.

The forward market for oil (100k)
(by Patrick Campbell of the Bank's Foreign Exchange Division, Bjorn-Erik Orskaug of the Bank's International Finance Division and Richard Williams of the Bank's International Economic Analysis Division). As the spot price of oil has risen in recent years, so has the price of oil for delivery in the future. This article examines the workings of the forward market for oil and considers why producers have not been hedging more of their future oil production following these unusual forward price moves.

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