Post by Bank of England

When war broke out in Iran in February 2026, the short end of the UK overnight index swap (OIS) forward curve rose sharply and began to slope upwards. If read as a measure of Bank Rate expectations, as is often the case, this would have implied an expectation that Bank Rate would increase over the coming months. However, market intelligence suggested that market participants expected rates to remain on hold. Bank staff have used a term structure model to separate risk premia from underlying rate expectations. The results suggest that most of the upward slope in the OIS curve at the time reflected higher risk premia, reflecting heightened uncertainty about the war and its macroeconomic effects. After removing these premia, the expected path for Bank Rate was broadly flat over the following year. Read the full article here: https://lnkd.in/eiHV2NPR