Recalibration of the Indexed Long-Term Repo Operation – Market Notice 11 June 2025

This Market Notice confirms the recalibrated parameters of the Indexed Long-Term Repo (ILTR) operation. In line with the Bank’s transition to a repo-led, demand driven operational framework for providing reserves, which ILTR operations are central to, the Bank is announcing an increase in the total amount of reserves available in each ILTR auction, an increase in the quantity of reserves available at fixed minimum spreads, and a gentler upward sloping supply curve than previously to ensure that clearing spreads only rise gradually.

Published on 11 June 2025

Market notice

The Bank of England (the Bank) published a discussion paper - Transitioning to a repo-led operating framework on 9 December 2024, which set out and sought feedback on the Bank's transition to a repo-led, demand driven operating framework for supplying reserves. This included proposals to recalibrate the Indexed Long-Term Repo (ILTR) in line with its expanded role to supply the majority of the stock of reserves, alongside the Short-Term Repo (STR), necessary for monetary control and financial stability needs. This Market Notice confirms the recalibrated parameters of the ILTR operation in light of feedback received on the discussion paper.The ILTR, which is a weekly operation that offers reserves for a six-month period against the full range of SMF-eligible collateral, will continue to operate as a variable price, variable size auction with uniform pricing and a flexible provision of liquidity between collateral sets. As confirmed in the discussion paper, the Bank judges that this auction design best delivers the balance required between flexibility and responsiveness to changing market conditions on the one hand, and sufficient predictability for SMF participants on the other.

The following changes will be made to the calibration of the ILTR to ensure it is appropriate for the transition to a repo-led operating framework:

The total amount of reserves available in each ILTR auction will rise from £25 billion to £35 billion. This means that the maximum stock of reserves available in the ILTR will rise to £840 billion^{footnote [1]}.
The quantity of reserves available at minimum clearing spreads will rise from £5 billion to £8 billion per auction. This means that the maximum stock of reserves available at minimum spreads will rise to £192 billion^{footnote [2]}.
A gentler upward sloping supply curve than previously will ensure that clearing spreads rise only gradually for quantities above what is available at minimum spreads. This will mean that participants are gradually introduced to competitive bidding. In line with the system's estimated needs, it is expected that reserves will be provided at around 20 basis points to 40 basis points above Bank Rate when drawing against Level C collateral in the ILTR, and more cheaply when drawn against more liquid collateral.

No changes are being made to the relative amounts available for each collateral set. Up to £4 billion (50%) of the £8 billion of reserves available at minimum clearing spreads is set aside for bids against less liquid collateral sets (£3.2 billion and £0.8 billion set aside for Levels C and B, respectively). If the proportion set aside for bids against less liquid collateral is not fully utilised, it is made available for bids against the more liquid collateral sets^{footnote [3]}. If demand rises and there is an increase in the relative demand for less liquid collateral, a larger proportion of the auction is made available to these less liquid collateral sets.

Alongside these changes, the minimum bid amount in the ILTR will fall from £5 million to £1 million^{footnote [4]}. These changes will take effect from 17 June 2025.

The Bank intends to increase the minimum spread over Bank Rate on bids against Level A collateral only in the ILTR from 0 basis points to 3 basis points. This change, originally announced in 2022,^{footnote [5]} is now scheduled to take effect in November 2025 and applies to new drawings thereafter. By introducing a modest spread above Bank Rate, this change is intended to balance incentives for participants between the STR and ILTR facilities against Level A collateral by more closely aligning the effective costs of the facilities given the longer tenor of the ILTR.

The Bank intends to make this change following the substantial repayment of drawings under the Term Funding Scheme with additional incentives for SMEs (TFSME). The effective date of this change will be confirmed ahead of time in a Market Notice due to be published in November 2025. The Bank does not intend to change minimum spreads on Level B and C collateral at that time.

The Bank intends that the ILTR should be used freely as a way for counterparties to access reserves. The PRA published a statement setting out its approach to the ILTR on 9 December 2024, noting that “The PRA would judge usage of the ILTR to be routine sterling liquidity management and intends that it is also seen as such by firms’ boards, credit rating agencies and overseas regulators”.

All other ILTR operation parameters remain unchanged

The Bank’s Market Operations Guide outlines all other ILTR operation parameters and has been updated to reflect this announcement. Alongside this update, the ‘Using the ILTR: a guide for participants’ has been published to provide participants with updated details on how the ILTR works, principles for effective participation, as well as examples of auction outcomes for different levels of demand.

As with all SMF facilities, the Bank will keep the calibration of the ILTR under review and may periodically update the parameters. Decisions regarding changes to the ILTR will be taken to ensure that its terms remain robust to structural changes in market conditions and continue to meet the Bank’s policy objectives.

Participants are strongly encouraged to deliver sufficient collateral to the Bank ahead of the operation and must ensure any Level C collateral they intend to use is pre-positioned well ahead of the operation.

Other than as amended by this Market Notice, the Terms and Conditions and Operating Procedures for participation in the Bank’s Sterling Monetary Framework will continue to apply to ILTR operations.

The maximum stock available assumes that twenty-four ILTR auctions are held in a six-month period, with each one reaching the maximum auction size.
Assumes that twenty-four ILTR auctions are held in a six-month period, with each one reaching the maximum auction size.
In the absence of bids against Level C, the entire £4 billion available at minimum spreads can be allocated to bids against Level B. Similarly, in the absence of bids against Level B and C, the full £8 billion can be allocated to bids against Level A.
The minimum bid amount in the STR will also fall from £5 million to £1 million.
Update to Level A Collateral Pricing in the Indexed Long-Term Repo - Market Notice 1 September 2022 | Bank of England