Using a unique regulatory data set with disclosed counterparty identities, we show that sophisticated clients in corporate bond markets outperform when splitting their orders across multiple dealers. The effect is stronger for informationally sensitive clients, for high-yield bonds, and during informationally intensive periods including COVID-19. Identifying clients who simultaneously trade in government and corporate bonds reveals that connections have larger and more persistent effects in the corporate bond market. (JEL G12, G14, G23, G24)Received: December 9, 2022; Editorial decision: September 25, 2025Editor: Norman Sch & uuml;rhoffAuthors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

UK government bond yields tend to drift upwards before scheduled news such as monetary policy announcements and labour market data releases. This effect is particularly pronounced during periods of UK bond issuance and is linked to higher term premia. Financial intermediary constraints playa role as dealers avoid accumulating inventory in pre-news windows following issuance. The composition of liquidity providers also shifts: hedge funds buy a large share of the bond issuance outside pre-news windows, but more passive investors - such as foreign central banks and pension funds - provide liquidity in pre-news windows. We outline a simple model to rationalize these findings.

We study macroeconomic fluctuations in the United Kingdom over seven centuries (1271–2022) using a time-varying VAR with stochastic volatility. We identify business cycle shocks as innovations explaining the largest share of future output variance. Before 1900, these shocks display a stagflationary, supply-driven pattern, while post-1900 shocks become demand-driven, raising both output and inflation. Output volatility declines over time, peaking in the seventeenth century. Monetisation had large real effects in the sixteenth and seventeenth centuries, shifting to more inflationary impacts thereafter. Our results highlight how business cycle dynamics evolve with institutional, monetary, and structural transformations.

We use UK transaction-level data on nominal bond, inflation-linked bond and inflation swap markets to study trading behaviour and prices in inflation markets. Our empirical analysis yields five main results: (i) there is persistent inflation mispricing over the 2018–22 period, with nominal gilts on average 135 basis points more expensive (per £100 notional) than their synthetic counterparts constructed from inflation swaps and inflation-linked bonds; (ii) hedge funds respond to changes in mispricing but their response does not constitute arbitrage – they adjust their bond portfolios appropriately, but do not hedge these trades in the inflation swap market; (iii) inflation markets are largely segmented with liability-driven investors and pension funds (LDI-P) dominating the inflation swap market, and many clients that are active in bond markets are absent in the inflation swap market; (iv) LDI-P activity is a key driver of inflation mispricing – the sector’s orderflows in inflation-linked bonds and (to lesser extent) nominal bonds and inflation swaps contribute significantly to day-to-day variations in mispricing; (v) the generally weak link between market-based measures of inflation expectations and survey-based measures is strengthened once we clean market prices from the effect of LDI-P trading activity.

The large reactions of long-term government bond yields to monetary policy shocks occur during periods of higher market liquidity, and there is very little reaction during periods of lower liquidity. This newly documented liquidity state-dependence persistently affects real yields, term premia as well as long-term mortgage rates. Balance sheet constraints on both hedge funds and dealers contribute to the liquidity state-dependence. Conditioning on market liquidity yields stronger state-dependence than simply conditioning on macroeconomic indicators. Our results underscore the importance of market functioning, and the financial health of key intermediaries that support it, for implementing stabilisation policies.

We use trade-level data to study price pressure effects in the UK gilt market from September to October 2022. During this period, forced sales by liability-driven investment funds (LDIs) led to price discounts on the order of 10%, accounting for roughly half the total decline in gilt prices. Balance sheet segmentation and operational issues slowed equity injections into LDIs by well-capitalized pension investors, leading LDIs to instead sell gilts. This effect was most pronounced for pooled LDIs, which invest on behalf of multiple pension schemes, because of coordination problems between pensions. Hedge funds also appear to have delayed entry to time the bottom of the fire sale. Overall, our findings illustrate how capital can be slow moving internally, due to contracting frictions, and externally, due to strategic arbitrager behavior.

We show that larger trades incur lower trading costs in government bond markets ("size discount"), but costs increase in trade size after controlling for client identity ("size penalty"). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation, is larger for corporate bonds, during major macroeconomic surprises and during COVID-19. These differences are larger among more sophisticated clients, consistent with information-based theories.

We develop a parsimonious price formation model to study information aggregation and information acquisition in the presence of trading delays. If delays apply uniformly to uninformed and informed traders, the level of delays does not affect information aggregation. Traders’ information acquisition incentives are, however, weaker in a market with longer delays. Therefore, the equilibrium fraction of informed traders is lower if delays are longer, establishing an inverse relationship between trading delays and price informativeness. We also show that risk premia and price dispersion tend to be non-monotonic functions of the level of delays when information acquisition is endogenous. We document novel empirical evidence from the UK corporate bond market, which largely corroborates the implications of our theory.

We use granular data sets – merged across the UK government bond, interest rate swap, options and futures markets – to estimate exposures to interest rate risk at the sector level and for individual funds within the same sector. We focus on non-bank financial intermediaries (NBFIs) such as insurance companies, pension funds, asset managers and hedge funds. We find that NBFIs tend to use derivatives to amplify bond market exposures to interest rate risk, rather than to hedge them. Moreover, interest rate derivatives usage is highly concentrated among a few investors, which could increase the aggregate consequences of idiosyncratic shocks to these investors. We show that this market concentration impedes the monetary policy transmission to asset prices. We also find that monetary policy loosening (tightening) causes NBFIs to take on more (less) interest rate risk via derivatives, consistent with the risk-taking channel of monetary policy.

We use transaction-level data on the UK government bond, repo and interest-rate swap markets to analyse market liquidity, investor behaviour and price dynamics during the market disruptions in September-October 2022. We provide a detailed account of how selling pressure in gilt markets – due to deteriorating derivative and repo positions of liability-driven investors (LDI) – led to evaporating market liquidity, especially in long-dated conventional gilts and index-linked gilts. We find that firms in the LDI-pension-insurance (LDI-PI) sector who had larger repo and swap exposure before the crisis sold more gilts during the crisis (while hedge funds were compensated for providing liquidity to the LDI-PI sector). Transaction costs in bond markets quickly soared, particularly for smaller trades, for trades at smaller dealers and for trades of non-LDI-PI investors too. The aggregate dispersion of transaction prices more than doubled in a matter of days, and price dispersion across primary dealers remained significant throughout the crisis, suggestive of tightened constraints on the intermediary sector. While the episode started with the forced selling by the LDI-PI sector, our results point to large costs on other market segments as well, consistent with the contagious nature of illiquidity.

We use granular datasets with observed trader identifiers – merged across the UK government bond, interest rate swap, options and futures markets – to estimate exposures to interest rate risk at the sector level and for individual funds within the same sector. We focus on non-bank financial intermediaries (NBFIs) such as insurance companies, pension funds, asset managers and hedge funds. We obtain three main results. First, NBFIs tend to use derivatives to amplify bond market exposures to interest rate risk, rather than to hedge them. Second, interest rate derivatives usage is highly concentrated among a few investors, which impedes the monetary policy transmission to asset prices. Third, monetary policy loosening (tightening) causes NBFIs to take on more (less) interest rate risk via derivatives, consistent with the risk-taking channel of monetary policy.

This note studies the inflation–uncertainty relationship in a New Keynesian framework with Rotemberg pricing. Inflation in these models can be expressed as the discounted sum of current and expected future real marginal costs. The main point of this note is to highlight that real marginal costs in general equilibrium tend to be a convex function of output. This, ceteris paribus, makes higher uncertainty about future output increase current inflation, which can quantitatively off-set the deflationary effect of uncertainty via the precautionary savings channel (Basu and Bundick, 2017).

In intermediated markets, trading takes time and intermediaries extract rents. We estimate a structural search‑and‑bargaining model to quantify these trading delays, intermediaries’ ability to extract rents, and the resulting welfare losses in government and corporate bond markets. Using transaction‑level data from the UK, we identify a set of clients who are active in both markets. We exploit the cross-market variation in the distributions of these clients’ trading frequency, prices, and trade sizes to estimate our structural model. We find that trading delays and dealers’ market power both play a crucial role in explaining the differences in liquidity across the two markets. Dealers’ market power is more severe in the government bond market, while trading delays are more severe in the corporate bond market. We find that the welfare loss from frictions in the government and corporate bond markets are 7.8% and 12.2%, respectively, and our decomposition implies that this loss is almost exclusively caused by trading delays in the corporate bond market, while trading delays and dealers’ market power split the welfare loss equally in the government bond market. Using data from the Covid‑19 crisis period, we also find that these welfare losses might more than triple during turbulent times, revealing the fragility of the over‑the‑counter market structure.

Using micro-data covering private and public UK firms, we document heterogeneous re-sponses to monetary policy; finding that employment at younger, more-levered firms is most sensitive. This heterogeneity is consistent with firm-level financial constraints. To show this, we exploit the fact that the homes of company directors are a key source of corporate collateral, but many directors live in a different region to their firm, allowing specifications controlling for demand. Younger, more-levered firms exposed to collateral fluctuations drive the employment response, showing a residential collateral channel in the transmission of monetary policy to firms. (c) 2022 Published by Elsevier B.V.

We document that UK government bond yields systematically rise in a two-day window before Monetary Policy Committee meetings, which we refer to as pre-MPC windows. The effect concentrates on pre-MPC windows that coincide with new issuance of government bonds. Decomposing the effect into an expected short-rate and a risk premium component, we find that the majority of the yield drift is attributed to increases in risk premia. These effects are present in the US as well. Using UK transaction-level data and analysing trading activity after primary issuances, we find that the dealer sector sells significantly more to the client sector during pre-MPC windows, consistent with dealers’ limited risk-bearing capacity. Importantly, we find significant changes in the composition of liquidity providers: hedge funds buy a large share of the issue outside pre-MPC windows, but they refrain from liquidity provision in pre-MPC windows, being replaced by less speculative investors such as foreign government entities and pension funds. We propose a theoretical model to rationalise the change in the composition of liquidity providers before information events, which can also explain the price drift observed in the data.

The share of inflation-linked debt in total public debt is procyclical in the UK and US. Controlling for breakeven inflation, the linker share is positively related to inflation. Tax-smoothing incentives of the government in a Ramsey model can explain this.

We propose a new measure of private information in decentralised markets -- connections -- defined as the number of dealers with whom a client trades in a time period. Using proprietary data for the UK government bond market, we show that clients have systematically better performance when having more connections, and this effect is stronger during macroeconomic announcements. Time-variation in market-wide connections also helps explain yield dynamics. Given our novel measure, we present two applications suggesting that (i) dealers pass on information, acquired from their informed clients, to their subsidiaries, and (ii) informed clients better predict the order-flow intermediated by their dealers.

We show that larger trades incur lower trading costs in government bond markets (“size discount”), but costs increase in trade size after controlling for clients’ identities (“size penalty”). The size discount is driven by the cross-client variation of larger traders obtaining better prices, consistent with theories of trading with imperfect competition. The size penalty, driven by the within-client variation, is larger for corporate bonds and during major macroeconomic surprises as well as during COVID-19. These differences are larger among more sophisticated clients, consistent with theories of asymmetric information. We propose a trading model with bilateral bargaining and adverse selection to rationalise the co-existence of the size penalty and discount. JEL Classification: G12, G14, G24

Contrary to the prediction of the classic adverse selection theory, more informed traders could receive better pricing relative to less informed traders in over-the-counter financial markets. Dealers actively chase informed orders to better position their future quotes and avoid winner's curse in subsequent trades. On a multi-dealer platform, dealers' incentive of information chasing exactly offsets their fear of adverse selection. In a more general setting, information chasing can dominate adverse selection when dealers face differentially informed speculators, while adverse selection dominates when dealers face differentially informed trades from a given speculator. These two seemingly contrasting predictions are supported by empirical evidence from the UK government bond market.