Monetary policy transmission: it’s all in the curve

Sofia Carollo and Natalie Burr

While monetary policy sets short-term policy rates, households and firms borrow at varying time horizons. How a policy decision reshapes the whole yield curve therefore matters. We trace the reactions of yields in narrow windows around UK monetary policy announcements across two dimensions: a ‘level’ surprise that shifts the entire curve and a ‘slope’ surprise that changes its steepness. We find that a level surprise affects CPI inflation more than a slope surprise does; this result is difficult to recover from surprises that conflate the two dimensions. So, the policy rate tells only part of the story: two curves considered equivalent from a stance perspective can lead to different inflation outcomes. Policymakers must be attuned to these differing effects.

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If AI disappoints? The transmission of US big-tech earnings news

Daniel Ostry, Roger Vicquéry and Emilio Zaratiegui

There is growing concern among policymakers, international organisations, and even big-tech Chief Executive Officers (exhibits I, II and III) that the current artificial intelligence (AI) boom features valuations increasingly detached from fundamentals. The Bank’s February 2026 Monetary Policy Report noted that an asset price correction is a key risk to the global economy, while the Bank’s July 2026 Financial Stability Report presented a scenario for how an AI correction could unfold. In this post, we study how negative big-tech earnings news transmits to global markets, which informed discussions around this scenario. We find that the effects ripple far beyond tech: equity indices decline, credit spreads widen and the US dollar depreciates. This last result, together with the limited response of Treasury yields, suggests muted flight-to-safety dynamics, unlike other financial stress episodes.

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Retail investors’ participation in the gilt market

Sarah Munson and Callum Ashworth

In recent years, retail investors’ demand for UK government bonds (gilts) has increased, marking a change in the composition of market participants. The growth of retail investors, comprised of individuals managing their own portfolios, has been a global phenomenon (Foxall et al (2025)). But what’s driving this change, and what does it mean for the gilt market’s role in monetary policy and financial stability? In this post we explore how UK-based retail participants’ presence in the gilt market is changing and what that might signal for the future. We find that retail holdings of gilts remain modest, with positions concentrated in a handful of bonds. This has limited impact on aggregate liquidity indicators but can impact liquidity in these specific bonds.

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Why do government bond yields drift when news is on its way?

Danny Walker, Dong Lou, Gabor Pinter and Semih Üslü

Government bond yields tend to drift higher in the days before monetary policy or data news in the UK. Over the past two decades this tendency – which we label ‘pre-news drift’ – has pushed up on yields by 2 percentage points in total over that period. The drift concentrates in pre-news periods that coincide with the issuance of UK government bonds, which is more common than it used to be. Our analysis shows that dealers and hedge funds are reluctant to buy bonds when news is on its way, which pushes up yields. Pre-news drift could affect the signal monetary policy makers draw from market rates and it could have implications for the optimal timing of bond issuance. There are further details in an associated working paper.

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What caused the LDI crisis?

Gabor Pinter, Emil Siriwardane and Danny Walker

In September 2022 the interest rate on UK gilts rose by over 100 basis points in four days. These unprecedent market movements are generally attributed to two key factors: the 23 September announcement of expansionary fiscal policy – the so-called ‘mini-budget’ – which was then amplified by forced sales by liability-driven investment funds (LDI funds). We estimate that LDI selling accounted for half of the decline in gilt prices during this period, with fiscal policy likely accounting for the other half. Balance sheet segmentation and operational issues slowed capital injections into LDI funds by well-capitalised pension schemes, leading LDI funds to instead sell gilts. Our analysis shows that these frictions were most pronounced for pooled LDI funds. There are further details in an associated working paper.

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‘No one length fits all’ – haircuts in the repo market

Miruna-Daniela Ivan, Joshua Lillis, Eduardo Maqui and Carlos Cañon Salazar

Funding markets are crucial for healthy and active financial institutions, and consequently for everyone in the economy. The repurchase agreement (repo) market plays a key role in bank and non-bank financial institutions’ (NBFIs’) daily activities by facilitating short-term financing and risk hedging. In this post, we use novel Securities Financing Transaction Regulation (SFTR) data to highlight new, and corroborate previous, stylised repo haircut facts.

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To the lower bound and back: measuring UK monetary conditions

Natalie Burr, Julian Reynolds and Mike Joyce

Monetary policymakers have a number of tools they can use to influence monetary conditions, in order to maintain price stability. While central banks typically favour short-term policy rates as their primary instrument, when policy rates remained constrained at near-zero levels following the global financial crisis (GFC), many central banks – including the Bank of England – turned to unconventional policies to further ease monetary conditions. How can the combined effect of these policies be measured? This post presents one possible metric – a Monetary Conditions Index – that uses a data-driven approach to summarise information from a range of variables related to the conduct of UK monetary policy. We discuss what this implies about how UK monetary conditions have evolved since the GFC.

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Another reason to care about investment taxes

Alex Kontoghiorghes

Do lower taxes lead to higher stock prices? Do companies consider tax rates when deciding on their dividend pay-outs and whether to issue new capital? If you’re thinking ‘yes’, you might be surprised to know that there was little real-world evidence (let alone UK-based evidence) which finds a strong link between personal investment tax rates on the one hand, and stock prices and the financial decisions of companies on the other. In this post, I summarise the findings from a recent study which shows that capital gains and dividend taxes do indeed have big effects on risk-adjusted equity returns, as well as the dividend, capital structure, and real investment decisions of companies.

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What is the information content of oil futures curves?

Julian Reynolds

Moves in oil prices have significant implications for the global economic outlook, affecting consumer prices, firm costs and country export revenues. But oil futures contracts tend to give an imperfect steer for the future path of oil prices because, at any given time, futures contracts may be affected by a wide range of fundamental drivers, besides the expected path of future spot prices. This post presents an empirical methodology to determine the so-called ‘information content’ of oil futures curves. I decompose the oil future-to-spot price ratio into structural shocks, which reflect different fundamental drivers of futures prices, in order to identify the extent to which futures prices reflect market information about the outlook for spot prices.

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Informed trading in government bond markets

Robert Czech, Shiyang Huang, Dong Lou and Tianyu Wang

Government bond yields serve as a benchmark for virtually all other rates in financial markets. But what factors drive these yields? One view is that yields only move notably when important news hit the market, for example monetary policy announcements. Others suspect that some investors have an information advantage due to their access to costly information (e.g. data providers) or more accurate interpretations of public information. In a recent paper, we show that two investor groups – hedge funds and mutual funds – have an information edge in the UK government bond (gilt) market, and that these two investor types operate through different trading strategies and over different horizons.

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