The contrast with the events of 7 October – less than four months later – could not be stronger. In the early hours of the morning sterling depreciated by around 9% against the US dollar in a matter of seconds, before quickly retracing almost all of the move. Not only did this represent almost unprecedented volatility, but for short periods market depth on key trading platforms all but evaporated. The Amihud measure of liquidity, based on the price impact of individual trades, suggests that there was a notable period at the start of this event where liquidity was markedly poorer than during the events around the referendum (Chart 3). 4  The Bank for International Settlements recently published an exhaustive study of the event drawing on 5  analysis conducted by the Bank of England. Like many flash events, the sterling moves seemed to have no clear trigger – just unusually large selling flows at a typically quiet period of the trading day. Instead the BIS report characterises the moves as the result of a confluence of factors, including the time of day, significant demand to sell sterling to hedge options positions, the execution of stop-loss orders and the withdrawal of liquidity by both human and automated traders in the face of unexpected volatility.
8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Chart 5: Investment grade, non-financial bond  Chart 6: Sterling investment grade non-financial  spreads  bond spreads, split by eligible and ineligible securities  Sources: Bank of America Merrill Lynch, Bloomberg and Bank calculations Sources: Bank of America Merrill Lynch, Bloomberg and Bank calculations Chart 7: Sterling investment grade corporate bond  Chart 8: Investment grade bond issuance by UK  issuance  private, non-financial corporates (PNFCs)  Sources: Dealogic and Bank calculations  Sources: Dealogic and Bank calculations  9  All speeches are available online at www.bankofengland.co.uk/speeches  9  Chart 9: CBPS portfolio relative to sector key  (a) As at 5 January 2017 (b) As at CoB 4 January 2017 Source: Bank calculations  10  All speeches are available online at www.bankofengland.co.uk/speeches  10