UK insurers' net bond buying rises; US peers' falls

A Bank of England staff study published on 9 October estimates that UK life insurers' cumulative net purchases of sterling corporate bonds rose after unexpected increases in long-term gilt yields, while US life insurers' net buying of dollar bonds from UK issuers fell.

The opposite responses matter because both groups are substantial holders of UK corporate debt. A view confined to domestic insurers could overstate how much their buying cushions the market after a UK monetary shock. It would also miss the overseas adjustment taking place in another currency segment of the same issuers' funding market.

The study does not say that a rate rise automatically produces a net gain or loss of demand across all British company bonds. It measures separate estimated responses in sterling and dollar debt, over different periods after a surprise. Those results cannot simply be subtracted to produce a market-wide total.

What the transaction data show

The authors combined UK transaction reports and US regulatory data for 72 UK and 550 US life insurers trading 2,436 bonds from 619 UK corporate issuers between January 2018 and December 2022. They compared bond purchases with unexpected movements in ten-year gilt yields around Monetary Policy Committee announcements, using those narrow-window surprises to isolate the policy-related part of a yield change.

For an illustrative one-percentage-point rise in the ten-year gilt yield attributed to such a surprise, the paper estimates that UK life insurers' cumulative net purchases of sterling bonds rose by about 2.5 percentage points of the bonds' outstanding amounts after 14 months. It estimates that US life insurers' cumulative net purchases of dollar-denominated UK corporate bonds fell by about one percentage point of outstanding amounts after a year. These purchase responses are measured as shares of bonds outstanding; they are not changes in bond yields, prices or borrowing costs.

The UK buying response becomes statistically distinguishable from zero after roughly a month in the authors' main analysis. The decline in US net buying is statistically significant between four and 14 months after the UK shock. A separate comparison within issuers finds a significant difference between the two investor groups. The results therefore rest on more than two visually different lines, although the size and timing of each estimate remain uncertain.

The researchers also examine surprises in US long-term rates. In their estimates, a one-percentage-point rise in the ten-year US Treasury yield is followed by about 1.2 percentage points more UK insurer purchases of sterling bonds after a year and about 0.5 percentage points fewer US insurer purchases of dollar bonds over the same period. That mirror pattern suggests an international investor channel, rather than a response confined to decisions taken in Threadneedle Street.

Why home currency changes the picture

The two groups do not own the same mix of securities. At the end of 2019, UK life insurers held roughly £130 billion of UK corporate bonds and US life insurers about £33 billion, the paper reports. UK insurers held about 19 per cent of outstanding sterling-denominated bonds from UK firms, but only around one per cent of their dollar bonds. US insurers held about 11 per cent of the outstanding dollar-denominated UK corporate bonds.

Those are 2019 holdings, not current market shares. Their value here is to show why an overseas insurer can matter to a British issuer without buying sterling debt. A company that borrows in dollars may meet a different pool of insurers and a different response to the same UK rate shock.

The authors identify several plausible reasons for the divergence, rather than a single proven cause. UK life insurers often need long-lived assets against long-lived liabilities. When long-term rates rise, changes in the relative value and duration of their liabilities can leave more room to buy longer-maturity sterling corporate bonds. The UK matching-adjustment framework also makes eligible, currency-matched assets useful to some insurers' balance sheets.

That does not mean the matching adjustment itself loosens whenever rates rise. The authors' tests do not support a dynamic capital release through that adjustment after a monetary shock. They describe it as a structural feature that helps shape which assets UK insurers hold and are ready to buy. For US insurers, global portfolio alternatives, dollar liabilities and different policyholder behaviour may carry more weight. The paper finds that translating transactions into dollars does not remove the broad contrast, weakening a simple exchange-rate explanation.

The limit of the finding

This staff working paper describes research in progress and was published to invite debate. Its authors' views are not Bank of England policy. The analysis links identified monetary surprises to insurer transactions; it does not directly measure how much a particular company paid to issue a bond because of the opposing flows.

Its shared UK and US transaction sample ends in 2022, a period that includes the pandemic and the UK liability-driven investment crisis. The authors extend the UK insurer data to August 2025 and report a broadly similar sterling buying pattern, but they do not have a matching US extension. The estimates should therefore not be presented as a forecast of what insurers will do after the next rate decision.

The practical lesson is narrower and more useful. Anyone assessing how monetary policy reaches British companies through bond markets needs to look at who holds the debt and the currency in which it was issued. Domestic insurers' net buying may rise after a rate shock while foreign insurers' net buying may decline. The balance between those flows remains an empirical question for each market and period.