Overview
This Indexed Long-Term Repo (ILTR) guide provides more detail on how the Bank’s ILTR facility works, the calibration of the ILTR as it plays a major role in the transition to a demand-driven, repo-led framework for supplying reserves, and information for Sterling Monetary Framework (SMF) firms on how to participate effectively in the operation.
Quick takeaways: how to participate effectively in the ILTR
Smooth your demand across auctions. Firms should distribute their demand across auctions to achieve lower and more predictable pricing, as well as a smoother maturity profile. If firms rely on the same smaller number of auctions, they are more likely to pay higher clearing spreads or go unallocated.
Be operationally ready to use the ILTR. Firms should ensure they have access to and are familiar with Btender, the Bank’s trading system. Firms should also ensure familiarity with the Bank’s collateral framework and plan ahead for collateral prepositioning and delivery.
How the ILTR works
The ILTR provides reserves for a six-month term against the full range of SMF eligible collateralfootnote [1] via a weekly competitive auction.
Firms submit bids consisting of (i) the quantity of reserves they are seeking against a specific collateral set; and (ii) the price they are willing to pay expressed as a spread to Bank Rate (BR). The auction uses ‘uniform pricing’ which means that all successful bids will pay the same single clearing spread for each collateral set. Further detail on how uniform pricing works in the ILTR can be found in Box A.
The quantity of reserves available in each auction, and the clearing spread at which they are provided, is responsive to demand. The Bank’s predetermined supply preferences are expressed through a set of supply curves.footnote [2] A fixed quantity of reserves is available at minimum spreads. As the spreads firms are willing to pay rises and the bid quantities increase above the quantities available at minimum spreads, the size of the auction – and so the quantities of reserves available – will increase and clearing spreads will rise. This design reduces the risk of the Bank disintermediating private markets or excessively influencing bank funding costs.
The ILTR is also responsive to demand against less liquid collateral. If the spreads firms are willing to pay against less liquid collateral rises, the auction will increase the proportion of the auction that can be allocated to less liquid collateral.
Calibration of the ILTR in the transition to a repo-led framework
As outlined in the Market notice, the Bank has calibrated the ILTR in line with its expanded role to supply the majority of the stock of reserves, alongside the Short-Term Repo (STR)footnote [3] – necessary for monetary control and financial stability needs. Further detail on the Bank’s transition to a repo-led framework was set out in the Bank’s December 2024 discussion paper. Chart 1 illustrates how the ILTR supply curve is expected to function at different levels of demand as the transition to a repo-led framework progresses.
Chart 1: ILTR Supply at different levels of demand
The ILTR supply curve has been calibrated with a specific set of parameters, to ensure the ILTR meets the Bank’s policy objectives. These are summarised in Table A.
Table A: Summary of ILTR supply curve parameters
Parameter | Minimum level | Evolution as demand increases |
|---|---|---|
Pricing | 0 basis points (bps), 5bps, 15bps for Level A, B and C collateral, respectively. The Bank intends to increase the minimum spread on bids against Level A collateral in the ILTR from 0bps to 3bps over Bank Rate. This change, originally announced in 2022, is now scheduled to take effect in November 2025 and applies to new drawings thereafter. | In line with the system’s estimated needs, it is expected that reserves will be provided typically at around 20bps to 40bps above BR when drawing against Level C collateral in the ILTR, and more cheaply when drawn against more liquid collateral. This range is calibrated against historic pricing for comparable market instruments. |
Quantity | £8 billion at minimum clearing spreads. | The total amount of reserves available in each ILTR auction can increase to £35 billion in total across the three collateral sets to meet greater liquidity demands. This ensures that the ILTR can supply reserves in line with firms’ estimated needs, and maintain additional capacity for higher levels of borrowing in the case of an increase in demand for liquidity. |
Proportion of auction available to each collateral set | Up to £4 billion (50%) for less liquid collateral sets at minimum spreads: £3.2 billion for Level C, £0.8 billion for Level B. If the proportion set aside for bids against less liquid collateral is not fully utilised, it is made available for the more liquid collateral set.(a) | If participants are willing to pay higher spreads for less liquid collateral, a larger proportion of the auction is set aside for bids against those collateral sets. In extreme cases, where there is high demand for Level C collateral, the entire auction can be supplied to bids against Level C collateral at prices above market comparators in normal conditions. |
Footnotes
- (a) In the absence of Level C bids, the full £4 billion 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. However, this does not work conversely. If there are no bids against Level A, but there are £8 billion of bids against Level B and C at minimum spreads, only £4 billion of bids will be allocated.
As with all SMF facilities, the Bank will keep the calibration of the ILTR under review and may periodically update the parameters of the ILTR to ensure that its terms remain robust to structural changes in market conditions, and it continues to meet the Bank’s policy objectives. Changes to the parameters above will be communicated in advance.
How to participate effectively in the ILTR
This section provides guidance to firms bidding in the ILTR. Following this guidance will improve allocation and pricing outcomes for firms, and it will generally be in firms’ best interest to follow this guidance.
The benefits of following the guidance are demonstrated by hypothetical auctions set out below.footnote [4]
Box A: Bidding in uniform price auctions
The ILTR is conducted as a ‘uniform price’ auction, so a single clearing spread is applied to each collateral set, and all successful bids pay the same spread. This box explains what that means in practice and the process for submitting multiple bids.
Uniform pricing means that:
- Bids above the clearing spread are fully allocated at the clearing spread.
- Bids below the clearing spread are unallocated as it suggests that the participant was not willing to pay that higher spread for liquidity.
- Bids at the clearing spread are allocated at that clearing spread, but may be partially allocated if demand is high. In this case, all individual bids at the clearing spread are partially allocated at the same fixed percentage.
Therefore, firms should bid the maximum spread they would be willing to pay for liquidity against each collateral set. This won’t usually be the spread that firms end up paying, but as the highest bids are allocated first, bidding in this way increases the likelihood that their bids will be allocated.
There are no restrictions on the number of bids submitted or the quantity of liquidity requested.footnote [5] Therefore, participants might find it helpful to submit multiple bids at different spreads – ‘laddering’ their bids – if they are willing to pay different prices for different quantities of liquidity.
Chart B illustrates an example of this. This firm may require £500 million of liquidity against Level C collateral and therefore be willing to pay 40bps for it (represented by Bid 1), but may also desire an additional £500 million of liquidity if it is available at a cheaper price (represented by Bid 2 at 30bps). In other words, the firm would be willing to pay 30bps for £1,000 million of liquidity, and 40bps for £500 million of liquidity against Level C collateral.
By bidding in this way, firms can receive more liquidity at lower clearing spreads but ensure that they receive some liquidity even if clearing spreads are higher.
- If the clearing spread against Level C collateral is 40bps, then Bid 1 will be partially or fully allocated. The firm will receive up to £500 million and pay 40bps.
- If Level C clears at 33bps, Bid 1 will be fully allocated. The firm will receive £500 million and pay 33bps.
- Finally, if Level C clears at 24bps, Bid 1 and Bid 2 will be fully allocated. The firm will receive £1,000 million and pay 24bps.
Chart B: Illustration of ‘laddering’ bids
1: Expect clearing spreads to rise above minimum levels during the transition
The Bank expects that during the transition to the repo-led framework, the quantity of reserves demanded in the ILTR will rise. At some point, demand will exceed the fixed amount of reserves that is available at minimum spreads per auction. Given the flat then upward sloping shape of the supply curve, for the auction size to rise and meet this demand – clearing spreads must rise. If firms fail to anticipate this and continue to bid at minimum spreads, their bids will go unallocated.
Firms should anticipate clearing spreads will rise gradually and should bid the maximum they are willing to pay as it will generally be in their interest to do so. If firms fail to anticipate a rise in clearing spreads, by bidding only at minimum spread levels, they will go unallocated when demand rises.
The following examples show hypothetical auctions with multiple representative firms that submit bids against all collateral sets.
Auction examples showing different levels of demand
In Example 1.1 (Chart 2 below), we consider a situation in which total demand from all firms does not exceed the amount set aside for bids against each collateral set at minimum clearing spreads (£3.2 billion for Level C, £0.8 billion for Level B, and £8 billion in total). The bars in Charts 2.i. (left panel) represent the quantities firms bid for against each collateral set. Charts 2.ii. (right panel) shows the bid spreads for these quantities, represented by the circles.
‘Firm 1’, shown in aqua in Chart 2.i., submits bids at minimum spreads. Other firms, representing all other demand in the auction and shown in orange, bid above minimum spreads. The clearing spreads for the auction are at minimum spread levels (represented by the green bars in Chart 2.ii.), and the auction supplies £7 billion of liquidity.
In this case, all bids are fully allocated at the minimum clearing spreads. The uniform pricing format means that the other firms’ bids submitted 15bps above minimum spreads are still allocated at the lower (minimum) clearing spreads.
What happens to ‘Firm 1’ if other firms’ demand rises?
In Example 1.1, the other firms were willing to pay above minimum spreads to secure liquidity. In the next set of examples, we consider a situation in which the other firms are bidding to secure an even larger quantity of reserves (at the same bid spreads as in Example 1.1), while Firm 1 maintains the same quantity of reserves demanded. The impact on Firm 1’s allocation depends on whether they continue to bid at minimum spreads.
In Example 1.2 (Chart 3 below), other firms increase their quantity of reserves demanded by 15bps above minimum spreads, while Firm 1 continues to bid for the same quantity at minimum spreads as shown in Example 1.1.
In response to greater demand (versus Example 1.1), the quantity of reserves supplied rises above the £8 billion of reserves available at minimum spreads (to £10.5 billion). Simultaneously, clearing spreads against Level B and C rise in response to the increase in demand. If Firm 1 continues to bid at minimum spreads, their bids against Level B and C will now be below the respective clearing spreads (as shown by Chart 3.ii., which has the purple circles below the green bars). Therefore, Firm 1’s bids against Level B and C are unallocated. Firm 1’s bid against Level A continues to be fully allocated as the auction clears at the minimum spread for Level A. In this example, the other firms’ bids are fully allocated.footnote [6] The new clearing spreads are determined by the Bank’s pre-determined supply curves. This example shows the other firms are not disadvantaged by bidding at higher prices.
Chart 3: Firm 1 continues to enter bids at minimum spreads and goes unallocated
In Example 1.3 (Chart 4 below), Firm 1 bids for the same quantity of liquidity but increases their bid spreads by 5bps for Level A and by 10bps for Level B and C which increases the likelihood of allocation when clearing spreads rise above minimum spread levels. Demand from other firms (quantity and bid levels) remains the same as in Example 1.2. The increase in bidding spreads by Firm 1 signals a greater demand for liquidity in the auction. Therefore, the quantity of reserves supplied increases to £12 billion. Simultaneously, clearing spreads for Level B and C rise marginally higher than in Example 1.2. Firm 1’s bids are now fully allocated at the clearing spreads which are lower than their bid spreads.
Chart 4: Firm 1 enters bids above minimum spreads and is fully allocated
2: Bid the maximum you are willing to pay
Firms should bid the maximum spread that they would be willing to pay for liquidity. As explained in Box A – if clearing spreads are below bid spreads, they will be allocated at the (lower) clearing spread.
Given the potential for demand and prices to vary across auctions, firms that use historic ILTR clearing spreads to guide bidding levels risk going unallocated as demand for liquidity in ILTR rises.footnote [7]
An individual firm’s bids are also unlikely to materially impact the overall clearing spreads of the auction. Therefore, firm’s bids should reflect their own preferences only, and they should not try to anticipate or influence broader auction dynamics.
Participants should bid the maximum spread they are willing to pay for liquidity against each collateral set, to increase the likelihood of their bids being allocated in full.
Auction examples showing different levels of demand
In Example 2.1 (Chart 5 below), demand for liquidity increases relative to the previous examples. Firm 1 bids above minimum spreads but at levels that are below the maximum they are willing to pay. Other firms are willing to pay more than Firm 1, and their bids reflect the maximum they are willing to pay for liquidity.
As a result of the increase in overall demand, the auction size – and so the quantity of reserves supplied – rises (to £22 billion). Clearing spreads for all collateral sets also rise. As bids from other firms are submitted at higher spreads, the majority of their bids are allocated. Other firms’ bids against Level A and C are fully allocated, while their bids against Level B are partially allocated (ie, scaled) as demand is higher than what the auction can supply against Level B collateral. On the other hand, Firm 1’s bids are not allocated as they failed to bid sufficiently high. This means they receive no liquidity via the ILTR in the auction. If they had bid in line with the maximum levels they were willing to pay, they would have had some of their bids allocated.
Chart 5: Firm 1 does not bid the maximum they are willing to pay, and goes unallocated
In Example 2.2 (Chart 6 below), Firm 1 submits bids at higher spreads to reflect the maximum they are willing to pay for liquidity. The increase in bidding spreads by Firm 1 signals a higher demand for liquidity, and so the quantity of reserves supplied rises to £24 billion. The increase in bidding spreads by Firm 1 to reflect their maximum willingness to pay improves its allocation in the auction, with the majority of Firm 1’s bids allocated.
Firm 1 has bid at the clearing spread against Level A and this bid is partially allocated. All bids against Level B are at the clearing spread and all the bids received partial allocation at the same scaling ratio (20%). Of its £500 million Level B bid, Firm 1 is allocated £100 million. Of the £4.5 billion of Level B bids submitted by other firms, they were allocated £0.9 billion.
Finally, as Firm 1’s bids against Level C were submitted above the clearing spread, this bid is therefore fully allocated at the (lower) clearing spread.
Chart 6: Firm 1 submits higher spreads at the maximum they are willing to pay
In the next set of examples, we consider a situation where firms increase the quantity of liquidity demanded and the spreads they are willing to pay.
3: Access the ILTR regularly and distribute your demand across auctions
The ILTR is offered weekly for a six-month term. The amount of reserves available in each ILTR auction for a given clearing spread is set such that, if firms distribute their demand across auctions, the ILTR can provide the majority of firms’ reserve needs at prices consistent with relevant market parameters.
It is in firms’ own interest to smooth their demand across auctions. If demand varies significantly across auctions, then firms will experience greater price volatility, less certainty of allocation, and could end up paying higher prices for liquidity. Firms will also benefit from a smoother maturity profile, consistent with good liquidity risk management.
Firms should distribute their demand across auctions to achieve lower and more predictable pricing. If firms rely on the same smaller number of auctions, they are more likely to pay higher clearing spreads or go unallocated.
The following example illustrates how distributing demand for reserves across auctions, rather than concentrating demand in one auction, results in lower and more predictable pricing and greater certainty of allocation.
Auction example showing the benefits of distributing demand
In Example 3.1 (Chart 7 below), consider a scenario where aggregate demand for reserves in a month (ie, across four auctions) is assumed to be £48 billion. It is further assumed that bid spreads in any given auction are 5bps, 20bps, and 35bps above BR against Level A, B and C collateral, respectively.
When firms distribute their demand, they bid only £12 billion in each auction (this is illustrated in the bar labelled ‘Distributed demand’ in the Chart 7.i). The auction clears at 0bps, 10bps, and 21bps against each collateral set (as shown in Chart 7.ii.), with the auction supplying £12 billion of liquidity. Firms are fully allocated so receive all the liquidity they bid for and pay clearing spreads below their bid spreads.
Intuitively, by distributing demand across four auctions in this manner, firms can receive the full £48 billion aggregate demand of reserves, while at the same time paying low and predictable clearing spreads across each of the four auctions.
Now consider a scenario where firms, rather than distributing their aggregate demand in a month across four auctions, instead decide to concentrate most of their demand in one auction (£33 billion in one week). As shown in Chart 7.i., only £21 billion of the bids are allocated, with £12 billion unallocated. As shown in Chart 7.ii., the auction clears at 5bps, 20bps, and 35bps for Level A, B and C respectively. This is significantly above the clearing spreads when the firms distributed their demand evenly across four auctions.
Example 3.1 shows therefore that if firms concentrate their demand in one auction, they get less certainty of allocation and worse pricing than if demand is distributed across auctions.
Chart 7: The benefits of distributing demand across auctions
It should be noted that in times of significant market stress demand for liquidity may become more concentrated. The ILTR has been calibrated to supply reserves in line with firms’ estimated needs and maintain additional capacity for greater levels of borrowing in the case of an increase in demand for liquidity, such as in times of stress.
The ILTR is just one part of the Bank’s toolkit for meeting firms’ demand for liquidity both in normal and stressed market conditions. The toolkit also includes the STR and our bilateral facilities, the Operational Standing Facility (OSF) and Discount Window Facility (DWF). The Bank also has additional tools such as the Contingent Term Repo Facility (CTRF) that can be activated at any time of heightened liquidity needs as a result of actual or prospective market stress.
Operational readiness for the ILTR
Ahead of participating in the ILTR, firms should ensure they have access to and are familiar with our electronic trading system (Btender), where the auction is conducted, and the Collateral Management Portal, to facilitate straight through settlement and management of securities collateral.
Firms should also ensure they are familiar with the Bank’s collateral framework, eligibility criteria, and haircuts, and plan ahead of collateral prepositioning. This is particularly important for loan pools and securities not currently listed as eligible, which require time to complete the due diligence process.
The Bank’s Market Operations Guide: Our tools provides further information on operational readiness across SMF facilities.
Level A, B and C collateral. Further information on collateral can be found at eligible collateral.
There is a supply curve that determines the total quantity of reserves to be supplied, and a separate set of supply curves determine how the total quantity is split between collateral sets.
The STR is a weekly operation that offers reserves for a one-week term against Level A collateral and is priced at BR. That means that if firms are unsuccessful obtaining reserves against Level A collateral in the ILTR, they can obtain required reserves via the STR instead. More details on the STR can be found at Bank of England Market Operations Guide: Our tools.
These examples are based on the current ILTR calibration, and will be updated following any future changes to the ILTR parameters (including the change in minimum spreads against Level A collateral which is due to take effect in November 2025).
While there is no restriction on the quantity of bids in the ILTR, firms should only submit bids for quantities where they have sufficient eligible collateral, either already prepositioned at the Bank or deliverable within the T+2 settlement period.
Depending on the scenario, this might not always be the case. Some firms could go unallocated (if bidding below the clearing spread levels) or partially allocated (if bids are at the clearing spreads).
While firms should expect to see some variation in pricing between auctions – as they would with private market instruments – the upward-sloping curve of the ILTR has been calibrated so that in normal market conditions the week-on-week volatility firms face is comparable to variation experienced in private markets.
