Market Notice
This Market Notice covers changes to the Bank’s collateral eligibility framework for the Sterling Monetary Framework (SMF). This is in the context of supporting the transition to a repo-led, demand-driven operating framework for supplying central bank reserves and is in part motivated by feedback received in response to the related Discussion Paper.
The changes in this Market Notice relate to collateral eligibility, the process for requesting eligibility for Asset-Backed Securities and Covered Bonds, and changes to applicable haircuts. The Bank does not normally announce haircut changes via Market Notice specifically, but is including them here in the context of these broader changes to its operating framework.
Eligible collateral
Government-linked debt
The Bank is extending collateral eligibility in the SMF to a broader range of debt issued by government-linked entities that are not explicitly guaranteed by the sovereign. Bonds issued by G10 and Australian regional and local governments and development/policy banks, of high credit quality (broadly equivalent to AA-) and meeting the Bank’s collateral and settlement requirements, will be eligible as Level B collateral from 19 June 2026.
At the same time, the Bank is updating the minimum credit rating requirements for G10 Government guaranteed agency bonds, and Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Corporation (Fannie Mae) and the Federal Home Loan Banks System securities from broadly equivalent to AAA to broadly equivalent to AA-.
Corporate bonds
As part of clarifying our eligibility requirements, the Bank is confirming that all eligible corporate bonds will be classified solely as Level B collateral for use in the SMF, and no longer divided between Level B and Level C.
Consistent with the approach taken in the Bank’s previous Corporate Bond Purchase Scheme, bonds issued by corporates that derive revenue from thermal coal mining will not be eligible as collateral.
All other eligibility criteria for corporate bonds remain the same. These changes will come into effect from 31 October 2026.
Eligibility Requests Process
To simplify the process for SMF Participants requesting eligibility of Asset-Backed Securities (ABS) and Covered Bonds, at the end of June 2026 the Bank is launching a new interactive request form, hosted on the Bank’s website Eligible collateral. This new form will replace the current ABS-CERT request template and reduce the amount of information requested. There is no change to the overall transparency requirements.
Haircuts
Index-linked sovereign debt
The Bank is introducing separate index-linked haircut schedules for eligible sovereign bonds, including gilts, other Level A, and Level B sovereign collateral. This more granular approach ensures that the haircuts for both conventional and index-linked sovereign collateral meet the Bank’s tolerance for risk across the economic cycle given their different valuation drivers and risk profiles, which has the benefit of providing stability in drawing capacity for firms.
The index-linked haircut schedules will take effect from 19 June 2026, and the new haircuts will be as set out in Table 1 below. The Bank continues to reserve the right to apply additional haircuts to any individual security at any time, including on collateral delivered in an outstanding transaction.
Corporate bonds
The Bank is revising its methodology for calculating haircuts on corporate bonds. New haircuts will be published when changes are implemented. These changes will result in a reduction in the base level of corporate bond haircuts.
Issuers can be exposed to potential financial risks connected to the adjustment of the economy towards net zero. To reflect this, the Bank will apply haircut add-ons to bonds from issuers in relevant sectors as needed to protect the Bank against financial risks.
New corporate bond haircuts and relevant add-ons will come into effect from 31 October 2026.
Further information
Eligibility and haircut documentation is available on the Bank’s eligible collateral web page and will be updated reflecting the above when each change takes effect.
The Bank keeps under review the securities eligible as collateral in its operations and reserves the right to apply additional haircuts to any individual security at any time, including on collateral delivered in an outstanding transaction. Participants should always consult the SMF Documentation, including any relevant Market Notices, for a complete guide to eligible collateral.
This Market Notice forms part of the Documentation for the Bank of England’s operations under the SMF and should be read in conjunction with the main SMF Documentation, each as amended from time to time. This Documentation is available on the Bank’s website. Any capitalised term used in this Market Notice and not otherwise separately defined herein, shall bear the same meaning as set out in the glossary to the SMF Terms and Conditions. This Market Notice may be supplemented and amended from time to time.
Table 1: Index-linked haircut schedule in effect from 19 June 2026
| Maturity | Floating |
<1 yr |
1-3 yrs |
3-5 yrs |
5-10 yrs |
10-20 yrs |
20-30 yrs |
>30 yrs |
|---|---|---|---|---|---|---|---|---|
| Gilts | 0.5 |
0.5 |
1.5 |
3.0 |
5.0 |
7.5 |
9.0 | 11.0 |
| Other Level A | 0.5 |
0.5 |
1.5 |
3.0 |
5.0 |
7.5 |
9.0 | 11.0 |
| Level B | 2.5 | 2.5 | 3.5 | 3.5 | 5.5 | 8.0 | 12.5 | 19.0 |