News Release
Bank of England Money Market Operations
30 March 1999
The Bank of England has announced three technical changes to its money market operations.
The Bank of England has announced that, from 15 April 1999, Bank of England Euro Bills will be eligible as collateral in repo transactions in the Bank's daily money market operations. The same procedures for money market operations will apply to the Bills as apply to HMG non-sterling securities. The margin ratio applicable to the Bills will be 3.5%, as for Euro Treasury Bills now.
In addition, from 15 April the Bank will accept member to member deliveries of gilt strips in repo transactions in its money market operations. The following margin ratios will apply:
| Gilt strips with a residual maturity of up to 1 year | 1.5% | |
| Gilt strips with a residual maturity more than 1 year and up to 3 years | 2.5% | |
| Gilt strips with a residual maturity more than 3 years and up to 7 years | 3% | |
| Gilt strips with a residual maturity more than 7 years | 7% | |
The same delivery procedures and deadlines will apply to member to member deliveries of gilt strips as already apply to member to member deliveries of gilts.
These steps continue the Bank's policy of extending the range of instruments which can be used in operations, provided the securities are of the highest quality and can be settled efficiently and safely.
Lastly, from 24 May 1999 the yield at which bills may be sold outright to the Bank in its open market operations will be the Bank's repo rate. This replaces the discount rates currently posted for bills with different maturities.
Notes
Bank of England Euro Bills
In January 1999, the Bank of England announced its plans to issue Bank of England Euro Bills. The Bills will be obligations of the Bank of England, but there will be no other material changes from existing UK Government Euro Treasury Bills in the issuance or main features of the Bills. The first auction of Bank of England Euro Bills will take place on 13 April 1999, for settlement on 15 April. For further information on Bank of England Bills, see the Bank of England press notice, UK Government Euro Treasury Bills and Bank of England Euro Bills, dated 5 January 1999.
Gilt strips
Gilt strips have been eligible as collateral in the Bank's money market operations since April 1998. However until now strips have only been eligible in Deliveries by Value (DBVs). In DBVs, stocks to a given aggregate value (rather than specific stocks) are delivered overnight, with the transaction being reversed the next day. When DBVs are used on successive days, the amount of gilts is automatically adjusted each day. The Bank applies a margin of 2.5% to DBVs used as collateral in its money market operations.
In a member to member transaction a specific stock is delivered. The margins for such transactions can, therefore, be set more precisely in light of the price volatility of the stock in question. The Bank has reviewed market activity in gilt strips, and accordingly set the margins shown above. The maturity bands applied to gilts strips are narrower than those currently applied to conventional gilt collateral, allowing the Bank to set appropriate margins for strips with different maturities which may make the use of strips collateral more attractive to counterparties.
Outright purchases of bills
The Bank is willing to purchase eligible bills outright in its operations; currently these are Treasury Bills, Eligible Bank Bills, and Eligible Local Authority Bills. At present the rate at which the Bank is prepared to buy bills is a discount rate. The change to yield is a technical adjustment. The change means that from 24 May 1999 the yield applied to outright purchase of bills will be the Bank's repo rate.
