Historical yields.

The band opens with the inflation of the 1970s still unfinished. Retail prices were rising at double-digit rates, and the policy answer was tight money. Official interest rates were taken into the high teens. The growth of the money supply was targeted. Sterling rose, helped by North Sea oil as well as by the interest rate, and a stronger pound made imports cheaper. The cost was a deep recession at the start of the 1980s. Inflation came down from the worst of that period, and the expansion of the late 1980s, fed by rapid growth in credit, took it up again.

From October 1990 sterling was in the Exchange Rate Mechanism, held in a band against the Deutsche Mark. German interest rates were high, because reunification was being paid for at home, and the peg meant British short rates had to be high enough to keep sterling inside the band. A gilt yield is the expected path of those short rates, plus a premium for locking the rate in for years. While the peg held, the market often charged more to lend for two years than for ten, because the high rate was expected to be temporary. How often the curve was that shape is on Curve dynamics.

Black Wednesday closes the band. On 16 September 1992 the government was defending the peg. Bank Rate was raised from 10% to 12% during the day, a further rise to 15% was announced and then cancelled that evening, and sterling left the mechanism. The short rate had been a tool of the currency band. From the next day it could be set for the domestic economy, and the long decline in yields is what followed.

With the peg gone, the government adopted an inflation target that autumn. In 1997 it handed the operational decision to the Bank of England's Monetary Policy Committee. The target the Committee works to now is 2% on the consumer prices index. How Bank Rate reaches mortgages and spending is on The Bank of England. How the index is built is on CPI/RPI. Why expected inflation sits inside a nominal yield is on Expected inflation.

What changed for a long gilt was the inflation investors expected over its life, and how steady they thought that inflation would be. A conventional gilt pays a fixed number of pounds. Slower, more trusted inflation makes those pounds worth more, and the yield investors require is lower. British inflation became lower and steadier than in the 1970s and 1980s. The real rate fell as well: the return investors demanded on top of that inflation was itself coming down.

The same disinflation was underway in the other large bond markets. Through the 1990s and 2000s, more of what rich countries consumed was imported from where labour was cheaper, and the import bill followed. Countries that saved more than they invested at home put the difference into foreign assets, and government bonds took a large share of it. Yields fell together in the United States, in what became the euro area, and in Britain. The part of the gap that was Britain's own is on The UK premium, from 1998. Early in this band the short yield fell faster than the long yield, which is what happens once a crisis rate has been withdrawn. Ahead of 2008 the short end rose back above the long end, as the market looked through a tight policy toward the cuts of a downturn.

The band opens on 15 September 2008, the day Lehman Brothers failed. Banks were short of capital, credit was contracting, and output fell. The Committee cut Bank Rate to 0.5% by March 2009, about as low as the floor was then understood to be. The two-year gilt is the market's reading of that rate over the next two years, so the crisis arrived in the curve first as a much lower expected path of Bank Rate. The fall in that path was already large when, on 5 March 2009, the Bank announced it would buy gilts.

Quantitative easing was the instrument left once Bank Rate was at the floor. The aim was to pull down yields further along the curve, and to leave investors holding deposits instead of gilts. This chart cannot separate how much of the later fall in longer yields was those purchases, and how much was the weaker economy the purchases were a response to. The recovery that followed was slow, and growth in output per hour stayed weak. Inflation spent much of the time near the 2% target and some of it under it. The euro area's sovereign crisis, and then the vote to leave the European Union, each brought another stretch of easier policy and another round of purchases.

The pandemic was the same regime at its extreme. Large parts of the economy were closed. Bank Rate was cut to 0.1%, and the Bank bought gilts on a larger scale than in 2009. The market priced short rates near the floor for years ahead. At two years and at five the spot yield went slightly negative: more than £1 today for £1 coming back that far ahead. Investors were paying for safety, and for a path of Bank Rate that was expected to stay pinned down. The ten-year stayed positive. On a scale that runs to 16%, the whole band is a strip along the bottom of the chart.

Defined-benefit pension schemes were, through these years, heavy buyers of long and index-linked gilts. A pension promised decades out rises in present value when yields fall, and a long gilt moves the same way, so the schemes were matching the promise. That demand sat under the long end. The ten-year yield was above the two-year on every day of the band: low short rates now, something higher later, and still a premium for lending a long way out.

Inflation came back. Reopening the economy met supply chains that could not stretch, and the Russian invasion of Ukraine then lifted gas and food prices. CPI, the measure in the target, rose above 11%. A conventional gilt pays fixed pounds, so a higher expected path of prices, and more uncertainty about that path, has to be paid for in the nominal yield. The real yield rose too. After a decade in which a safe return after inflation had been around zero, investors again required a positive real yield.

The Committee lifted Bank Rate off the floor. The peak of that cycle was 5.25%. On 18 September 2026, the last day of the chart, Bank Rate was 3.75%. The two-year yield follows that path, so it rose first. For a long stretch it sat above the ten-year, which is the market treating the tight setting as something that would be eased later. The level and the slope of that move are on Curve dynamics.

Issuance and the Bank's own balance sheet were pushing the same way, and the chart does not split them from the path of Bank Rate. The deficit, the energy subsidy, and the gilts that were maturing meant a heavy programme of new sales. From November 2022 the Bank was selling gilts back to private investors, and letting others mature without replacement. That is quantitative tightening: the private market has to hold more of the stock. Yields were rising in the United States and the euro area as well, as the Federal Reserve and the European Central Bank tightened too. What was shared, and what was Britain's alone, is on The UK premium. Inside the Yield separates the expected path of short rates from the term premium.

The mini-budget of 23 September 2022 sits inside the climb. The Chancellor set out permanent tax cuts, published without a forecast from the Office for Budget Responsibility. Yields rose sharply, and the rise went furthest where defined-benefit schemes had hedged with borrowed money and then had to sell gilts to meet margin calls. The Bank bought long and index-linked gilts so that those sales would have a buyer, held them in a separate portfolio, and sold them afterwards. That was a financial-stability operation, not a new round of quantitative easing. On the day of the announcement, the ten-year move was mostly a higher expected path of short rates. The premium for holding the long bond widened in the days that followed.

The pension schemes still hold a great deal of the stock. Many are closed to new members, and the bid for additional long gilts is thinner than it was when yields were on the floor. When that marginal buyer steps back, a given sale moves the long yield further. The holders are on Who owns it.