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NOTES ON THE BANK OF ENGLAND UK YIELD CURVES

In this paper, we study the effect of European Central Bank (ECB) communication on interest rates of different maturities. More precisely, we aim at testing whether the statement made during the press conference that follows the announcement of the ECB’s decision about the main refinancing rate, for its part, has an impact on interest rates. To do so, we are going to look whether the tone of the ECB’s statement (which we are going to codify) or the change in the tone from the previous statement explains changes in the Euro zone’s short- and long-term interest rates. We briefly review, in Section 2, empirical studies on central bank. | 184207 NOTES ON THE BANK OF ENGLAND UK YIELD CURVES The Monetary Instruments and Markets Division of the Bank of England estimates yield curves for the United Kingdom on a daily basis. They are of two kinds. One set is based on yields on UK government bonds and on yields in the general collateral repo market. It includes nominal and real yield curves and the implied inflation term structure for the UK. The other set is based on sterling interbank rates LIBOR and on instruments related to LIBOR short sterling futures contracts forward rate agreements and LIBOR-related interest rate swaps . These commercial bank liability curves are nominal only. The methodology used to construct the yield curves is described in the Bank of England Quarterly Bulletin article by Anderson and Sleath 1999 and a detailed technical description can be found in their Bank of England Working Paper no.126 New estimates of the UK real and nominal yield curves . The way in which the methodology is adapted for the commercial bank liability curves is described in the Quarterly Bulletin article by Brooke Cooper and Scholtes 2000 - see especially the appendix. For examples of the way in which the Bank uses and interprets these data see the Money Asset Prices chapter of the Bank s Inflation Report. These background notes describe some terminology the relevant financial instruments and other points to be aware of. 1 The government liability nominal yield curves are derived from UK gilt prices and General Collateral GC repo rates. The real yield curves are derived from UK index-linked bond prices section 1 below describes these instruments . By appealing to the Fisher relationship the implied inflation term structure is calculated as the difference of instantaneous nominal forward rates and instantaneous real forward real rates section 2 makes clear exactly what these terms mean . The instruments used in the construction of the commercial bank liability curve are first converted into synthetic bonds .