Quarterly Bulletin
Gilt Market Articles
| 2008 Q2 | Recent advances in extracting policy-relevant information from market interest rates  (3.6mb) By Michael Joyce, Steffen Sorensen and Olaf Weeken of the Bank's Monetary Instruments and Markets Division. Market interest rates form an important part of the transmission mechanism of monetary policy. They also contain information about market expectations of future policy rates as well as attitudes to, and perceptions of, risk. Extracting and interpreting this policy-relevant information is not straightforward, however. This article describes recent advances in this field and how they can be used to shed light on the downward trend in long-term real forward interest rates and the upward trend in long-term inflation forward rates, both developments that have attracted the attention of policymakers. |
| 2008 Q2 | Recent advances in extracting policy-relevant information from market interest rates (3.6mb) By Michael Joyce, Steffen Sorensen and Olaf Weeken of the Bank's Monetary Instruments and Markets Division. Market interest rates form an important part of the transmission mechanism of monetary policy. They also contain information about market expectations of future policy rates as well as attitudes to, and perceptions of, risk. Extracting and interpreting this policy-relevant information is not straightforward, however. This article describes recent advances in this field and how they can be used to shed light on the downward trend in long-term real forward interest rates and the upward trend in long-term inflation forward rates, both developments that have attracted the attention of policymakers. |
| 2006 Q4 | Recent developments in sterling inflation-linked markets (620k) (By Grellan McGrath and Robin Windle of the Bank's Sterling Markets Division). Sterling inflation-linked markets have developed rapidly over recent years, both in size and complexity. These changes have been driven by increased demand, especially from institutional investors such as pension funds, which has stimulated new supply as well as the rapid development of the market for inflation swaps. This article surveys these developments and considers their implications, in particular for the way risk is transferred between market participants and the interpretation of observed market rates. Market contacts suggest the increases in activity and the number of participants have enhanced efficiency in these markets, although the timing of demand and supply flows can still influence observed market prices. Looking ahead, there are considerable uncertainties as to the size of future demand and supply in the market. |
| Spring 2006 | 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. |
| Winter 2002 | Public
sector debt: end-March 2002
(73k) (by Paul Burton of the Bank's Monetary and Financial Statistics Division). Public sector net debt (PSND) stood at £310.0 billion as at end-March 2002, £4.1 billion higher than at end-March 2001. This was equivalent to 30.4% of GDP, some 0.9 percentage points lower than at end-March 2001. This annual article examines the structure of the financial liabilities of the UK public sector. |
| Spring 2002 | On market-based
measures of inflation expectations
(124k) (by Cedric Scholtes of the Bank's Reserves Management, Foreign Exchange Division). Prices of index-linked financial securities provide market-based measures of inflation expectations and attitudes to inflation risk. In the United Kingdom, 'breakeven' inflation rates derived from index-linked and conventional gilts reflect investors' forecasts of future inflation, and also act as a barometer of monetary policy credibility. Implied breakeven inflation rates are a useful alternative to surveys and econometric forecasts, and are regularly presented to the Bank's Monetary Policy Committee to inform its assessment of economic conditions. This paper outlines the technical and institutional factors that complicate the interpretation of UK breakeven inflation rates. Looking at data, we find that inflation expectations have fallen considerably since the adoption of inflation targeting and that UK monetary policy credibility is considerably stronger since the Bank of England was granted operational independence. |
| May 2000 | A comparison
of long bond yields in the United Kingdom, the United States,
and Germany This article begins by outlining the main determinants, according to economic theory, of these changes in relative bond yields. It then goes on to discuss what other UK-specific factors may have influenced the bond yield differentials in recent years. Much of the decline over the past 25 years or so appears to be attributable to a fall in inflation expectations in the United Kingdom relative to inflation expectations in Germany and the United States. We find little evidence to suggest a convergence of real rates of interest or a secular decline in relative, country-specific risk premia. While much of the decline in the yield spreads can be attributed to changes in relative inflation expectations, we also believe that the dramatic decline in these spreads over the past three years cannot be entirely due to this. Instead, we believe that some of the recent decline is due to gilt market specific factors. Around one third of the decrease in UK-US and UK-German bond yield differentials observed since the beginning of 1997 has been, we suggest, related to a significant reduction in net gilt issuance combined with an increase in the demand for long-dated gilts from pension funds and life assurance companies. The evidence from long gilt yields does not appear to be consistent with EMU-convergence stories. Indeed, US forward rates are closer to euro rates in ten years' time than are UK forward rates. |
| February 1998 | Upgrading the Central Gilts Office (55k)
(by Christopher P Mann of the Bank's Market Services Division and Controller of the CGO Project). The Central Gilts Office system, first introduced in 1986, was designed and built to meet basic market demands: the provision of settlement for gilt-edged securities through an efficient and secure system of electronic book-entry delivery of stock in real time against an assured payment. By 1994, it had become apparent that the system needed to be upgraded to reflect continuing improvements in information technology (especially in data security) and developments in market practices, as well as structural reforms in the gilt market and payments systems and the possibility of UK membership of European Monetary Union. This article explains the background to the decision taken in 1995 to upgrade the system, describes the process involved and sets out some of the features and changes introduced by the upgraded system. |
| May 1997 |
The first year of the gilt repo market The gilt-edged market: the Bank of England's relationship with the gilt-edged market makers and inter-dealer brokers |
| February 1997 | The gilt-edged market: developments in 1996 (128k)
The gilt-edged market development programme continued in 1996, and gilt repo trading concluded a successful first year. Ten-year gilt yields were little changed at year-end from the previous year, but the yield curve was flatter. Gilt sales raised nearly £40 billion in 1996, taking the value of gilt-edged stock outstanding to £285 billion. Further reforms to the issuance process contributed to strong auction results and rapid sales of tap stocks in 1996. The year concluded with the Bank's proposals to extend its daily money-market operations to operate in gilt repo and to abolish the requirement that the gilt-edged market-makers be separately capitalised entities. |
| May 1996 | G7 yield curves (224k) (by Neil Cooper and Jim Steeley of the Bank's Monetary Instruments and Markets Division). In November 1994, the Bank of England adopted a new method for estimating yield curves from the gilt-edged market. The curves are used for measuring expectations of future interest rates and inflation. Recently the Bank used the same method to estimate the yield curves of the other G7 countries' government debt. This article describes these yield curves and explains how the estimation method was adapted to each particular market. |
| February 1996 | The gilt-edged market: developments in 1995 (181k) Numerous gilt market reforms were announced in 1995. This annual article describes these reforms and reviews primary and secondary market developments in the gilt market during the year, highlighting key statistics on stocks issued, stocks outstanding and turnover. |
| February 1995 | The gilt-edged market: developments in 1994 (54k) describes activity in the gilt and related derivatives markets last year, and developments in the business of the GEMMs. |
| August 1994 | Estimating market interest rate and inflation expectations
from the prices of UK government bonds (55k) (by Mark Deacon and Andrew Derry) summarises recent Bank research into how best to derive expectations of interest and inflation rates from the prices of gilts. It explains the important issues of estimation and interpretation that arise, and outlines a number of changes the Bank proposes to make to the techniques it uses. |
| February 1994 | The gilt-edged market: developments in 1993 describes activity in the gilt and related derivatives markets and the business of the GEMMs. In a year in which yields fell markedly, the PSBR was funded without serious difficulty. Turnover in gilts rose, as did the capital of the GEMMs, whose operations remained profitable. |
