Minutes of Money Market Committee meeting – September 2024

Published on 25 November 2024

Date: 24 September 2024

Time: 11am – 12.30pm | Location: PRA, 20 Moorgate, London, EC2R 6DA

Minutes

Item 1 – Welcome

The Chair thanked members for attending and confirmed that the Minutes of the June 2024 meeting had been published on the Bank’s website.^{footnote [1]}

The Chair welcomed those who were attending as part of the Bank’s Meeting Varied People (MVP) initiative and introduced Matt Roberts-Sklar who will be taking over as chair of the committee from December.

Items 2 – Discussion on Market Conditions

A member of the MMC provided an overview of current market conditions. The presentation covered macroeconomic developments and central bank reactions across the UK, US and Euro Area; gilt markets, including UK DMO auctions and quantitative tightening; and the short-end of the UK curve, including bills, SONIA, repo and the Bank’s Short-Term Repo facility.

In the discussion, the committee noted the divergence in pricing between high and low coupon gilts, in particular the richening of low coupon gilts since 2022. It was noted that this phenomenon, in part driven by investors seeking tax efficiencies, was also occurring in non-UK government bond markets. The DMO received positive feedback on their recent gilt tender, which contributed to alleviate pressures in these gilts. The importance of the DMO’s standing repo facility and the APF gilt lending arrangement was also emphasised.

One committee member noted the tight range in SONIA volumes, adding that this is likely to persist whilst general collateral repo rates remain consistently above SONIA.

Item 3 – Discussion on the Bank of England’s future balance sheet

The Bank provided an overview of the July speech by executive director Victoria Saporta on the Bank’s future operating framework for reserves supply. The discussion centred on the future role and positioning of the Bank’s existing Indexed Long-Term Repo (ILTR) and Short-Term Repo (STR) facilities.

Committee members agreed that usage of the Bank’s STR facility, which supplies reserves against high-quality ‘Level A’ collateral, has been effective in controlling short-term market rates as reserves are drained from the system. One member noted it has also proved valuable for pure treasury cash flow management. One member noted, however, that regulation (specifically leverage capital requirements) can create frictions.

The committee observed that there has been growth in ILTR usage in recent months, but that it is unlikely the facility will be used regularly by the market to source reserves until we get closer to the preferred minimum range of reserves (PMRR). They noted that, when reserves become less ample, counterparties will have a greater incentive to place collateral with the Bank for a longer term.

Another member outlined that Level A collateral might be less readily available to certain parts of the UK banking sector (e.g. smaller retail firms) for use in the STR. It was noted that the ILTR is there to provide support through its wider range of applicable collateral.

Item 4 – LCH update on buyside repo access models

LCH presented on the key benefits of repo clearing for the buyside and opportunities for efficiencies going forward through adoption from the broader investment community.

Committee members provided feedback to LCH, highlighting key considerations and constraints.

Item 5 – FSB report on functioning and resilience of CP/CD markets

The Bank provided an overview of the Financial Stability Board’s paper on enhancing the functioning and resilience of Commercial Paper (CP) and Certificates of Deposit (CD) markets, outlining the key vulnerabilities and the reforms addressed in the paper.

Points raised the committee centred around secondary market liquidity, including how the short-dated nature of CP and CD incentivises a hold-to-maturity investment strategy; the one-way flow from money funds; and limited dealer inventory in sterling CP. Some possible solutions to improve market liquidity were discussed.

Members emphasised the opacity of the CP/CD markets, and that greater availability of transactional data would likely encourage participation. It was noted that greater clarity on the legislative framework underpinning these markets, and more information about issuers, would be beneficial.

Item 6 - Any other business

SIMEX24, the biennial industry/public sector stress exercise, is taking place on 1 October. This year's exercise is scenario is based in a national power outage. The Bank will report back at the December MMC meeting.

A member also provided a brief update on the work of the Accelerated Settlement Taskforce on moving to ‘T+1’ settlement. Noting an overview of recent recommendations by an industry led technical group.

Committee attendees

Gordon Lowson – Abrdn
James Winterton - Association of Corporate Treasurers
Ina Budh-Raja - Bank of New York Mellon
Emma Cooper – BlackRock
Anna Pudlowska – BlackRock
Ben Arnold – BlackRock
James Murphy - HSBC
Marije Verhelst – Euroclear
Inna Shaykevich – Goldman Sachs
Chris Brown - Insight Investment
John Wherton – LGIM
Alan Williams - Santander UK
Romain Sinclair - Société Générale
John Argent – Tradition
Nic Erevik - Newcastle Building Society
Nina Moylett - M&G
Avi Tillu – PIMCO
Louis Stewart – PIMCO
Vasi Ardelean – PIMCO
Tony Baldwin - LCH
Nick Barnes – LCH
James Upton – LCH
Chirag Patel – Rabobank
Jo Wheelan - DMO (Observer)
Alan Barnes - FCA (Observer)