Bank of England loosens Sterling Monetary Framework collateral rules for agency bonds
The Bank of England today published a Market Notice that updates collateral eligibility in the Sterling Monetary Framework.
The Market Notice, issued by the Bank of England on 11 June 2026, sets out changes to which securities the Bank will accept as collateral under the SMF.
Bonds issued by G10 governments, Australian regional and local governments, and by development and policy banks will be accepted as Level B collateral provided they are of high credit quality — broadly equivalent to AA — and meet the Bank’s collateral and settlement requirements.
The Bank is lowering the minimum credit-quality threshold for G10 government‑guaranteed agency bonds and for US agency securities issued by Freddie Mac, Fannie Mae and the Federal Home Loan Banks System from broadly equivalent to AAA to broadly equivalent to AA-.
From 31 October, all eligible corporate bonds will be classified solely as Level B collateral rather than being split between Level B and Level C.
The Market Notice excludes corporate bonds issued by companies that derive revenue from thermal coal mining from eligibility as collateral.
The Bank reiterates how it values collateral and how haircuts are applied. Collateral securities are valued using observed and derived market prices, and where a price is derived using model inputs a higher haircut is applied. The Bank obtains live market prices at approximately 4pm London time where possible; its valuation is binding, and it uses prices, haircuts and foreign‑exchange rates to calculate an Adjusted Market Value. Haircuts for Level C loan collateral continue to be calculated for each pool of loans individually. The notice also states that the Bank is revising its methodology for calculating corporate bond haircuts and that new corporate bond haircuts and relevant add‑ons will come into effect from 31 October.
Market participants should apply the Level B additions from 19 June and prepare for the corporate bond reclassification and new haircut calibrations from 31 October.
--- Sources: https://www.bankofengland.co.uk/markets/market-notices/2026/june/collateral-eligibility-in-the-smf-11-june-2026
