Bank of England expands collateral eligibility for Sterling Monetary Framework

The Bank of England has revealed modifications to the collateral eligibility framework for the Sterling Monetary Framework (SMF), which will take effect in June and October 2026. These adjustments aim to facilitate a repo-led, demand-driven approach for central bank reserves. Significant changes include the inclusion of a wider array of government-related debt from G10 nations, as well as regional and local governments in Australia and development/policy banks, starting on 19 June 2026, classified as Level B collateral. The minimum credit rating for G10 government-guaranteed agency bonds and securities from Freddie Mac, Fannie Mae, and the Federal Home Loan Banks System will be reduced from AAA to AA-. All corporate bonds will be designated as Level B collateral, with those linked to thermal coal mining excluded. Additionally, a new interactive form for Asset-Backed Securities and Covered Bonds eligibility will be introduced by the end of June 2026, and distinct index-linked haircut schedules for sovereign bonds will commence on 19 June 2026. Corporate bond haircuts will be updated, with new adjustments for issuers facing net-zero transition risks starting on 31 October 2026.