This article reviews the development of the gilt-edged market in the period of just over two years since its present structure was inaugurated at the time of Big Bang. It draws on the Bank's direct experience of the market, through its conduct of officiaL operations and its prudential supervision of the main gilt-edged firms, and on a survey which the Bank conducted early in 1988 among investors active in the market. The first part of the article reviews the deveLopment of the main structuraL features of the gilt-edged market since Big Bang. It concludes that aLl the main eLements appear to have functioned effectiveLy and that the new structure has been successfuL in providing a continuous and liquid market for investors and for official operations. Competition among the market makers has been an important ingredient in this success, but at the same time has been a source of pressure on the market makers individualLy; these competitive pressures are examined in more detail in the second part of the article. More recentLy, the new structure has had to adapt as the public sector has moved into substantiaL surpLus and the authorities in consequence have started buying gilts. The final section therefore considers the development of official operations in the market since Big Bang and, in particuLar, the ways in which the Bank has sought to minimise disturbance to the market arising from the change in the government's funding needs.
The gilt-edged market since Big Bang