By Nicola Anderson and John Sleath.
This paper presents a new method for calculating estimates of the UK real and nominal yield curves. This is helpful in assessing implied market interest rate expectations at various horizons and for deriving inflation expectations. The estimates differ in a number of ways from those previously published. First, we adapt for the UK market a spline-based technique originally developed by Waggoner for the United States. Second, data from the generalised collateral (GC) repo market are used, in addition to coupon bond prices, to improve the quality of the estimates at shorter maturities. Third, estimates of the real curve are extracted from the prices of index-linked gilts. Each of these issues is described in detail in the paper, and discussed briefly below.