Reality of RWA Tokenization in 2026: Only One Asset Class Is Ready for Prime Time

On 10 July 2026, the Bank of England published a market notice setting out how it will reduce its stock of UK government bond purchases held for monetary policy purposes to zero, through annual sales of £20 billion alongside maturing gilts. The notice states that £222 billion of gilts maturing before 2035 will be retained in the Asset Purchase Facility to maturity, and £120 billion of the longest-dated gilts will be held to maturity to back banknote issuance. For £146 billion of gilts maturing between 2035 and 2049, the Bank has engaged with HM Treasury and the Debt Management Office on a model whereby the MPC's decision could be implemented through APF sales to the Government. The same day, the ECB published an account of its September monetary policy meeting and the Federal Reserve released FOMC minutes; the EBA published a mission statement.

Background

The sources describe a monetary policy backdrop dominated by inflation concerns and balance sheet unwind. The ECB account states that since the Governing Council's July 2026 meeting, euro area financial markets had continued to be driven by energy price developments, with attention turning to the global rise in long-term yields amid a resilient euro area macroeconomy. Persistently high energy prices, reinforced by concerns about higher food price inflation, had pushed market expectations for inflation and policy rates higher. Energy prices and futures curves had moved up owing to renewed US-Iran hostilities, and in Europe the focus had shifted from oil to refined products and gas. The gas oil futures curve had moved up significantly, and European gas prices had risen to the highest level since early 2023. The recent heatwave and a likely strong El Niño event had added to concerns about upward pressure on prices, with international food prices rising significantly. Market-based inflation expectations had reassessed the persistence of the shock, with December 2026 inflation fixings jumping sharply and June 2027 fixings rising steadily since mid-April. The December 2027 fixings had increased only modestly, suggesting a decline in inflation during 2027 while remaining above 2%. Expectations for the ECB's terminal rate had risen above 3% for the first time during this hiking cycle, and markets had priced in 84 basis points of hikes overall by the end of 2027, compared with 64 basis points at the time of the July meeting. In the United States, markets were pricing in between one and two rate hikes in 2026. The global rise in long-term yields had originated in the United States, where high private and public issuance, concerns about the fiscal trajectory and uncertainty about inflation had pushed yields higher. The euro area nominal overnight index swap yield curve had shifted higher in a broadly parallel manner, with the front end driven by higher inflation compensation and expected rates, and the longer end by higher real term premia reflecting more duration to be absorbed by markets and heightened uncertainty about the fiscal outlook.

What happened

The Bank of England's market notice states that at its meeting ending on 16 September 2026, the Monetary Policy Committee set out a multi-year path to reduce the stock of UK government bond purchases held for monetary policy purposes to zero, through annual sales of £20 billion alongside maturing gilts. The Bank Executive decided to retain in the Asset Purchase Facility £222 billion of gilts maturing before 2035 to maturity, and £120 billion of the longest-dated gilts to be held to maturity for the purposes of indirectly backing current and future banknote issuance. These include part of the APF's holding of the 1.75% 2049 gilt, and all gilts that mature after that. For the remaining gilts, which mature between 2035 and 2049 and amount to £146 billion in purchase proceeds terms, the Bank has engaged with HM Treasury and the Debt Management Office to consider a model whereby the MPC's decision could be implemented through APF sales to the Government. Under this model, HMT would instruct the DMO to purchase the APF gilts that the Bank Executive is selling, at market prices and in a pre-defined manner pre-announced by the Bank Executive. Gilts would be sold at an annualised pace of £20 billion a year, with sales concluding around the time of the unwind of gilts held to maturity in 2034. The Bank will review progress before April 2027 such that, subject to a final decision to proceed, implementation could begin in a way that allows this to be incorporated into the DMO's annual financing remit, as set by HMT. Further operational details will be announced in due course. Irrespective of the final decision, the Bank will be announcing by April 2027 the operational details through which it will be implementing the MPC's multi-year plan. Bank APF auctions will pause in the meantime. The full portfolio of APF gilts will continue to be made available for the DMO to borrow via the APF gilt lending facility. Table 1 notes that £7.8 billion of the APF's holding of the 1.75% 2049 gilt will be retained to back banknotes, while £15.0 billion will be sold. Separately, the ECB account states that markets were fully pricing in a rate hike at the September meeting and had priced in 84 basis points of hikes overall by the end of 2027, compared with 64 basis points at the time of the July meeting. The Federal Reserve released minutes of its September 15-16, 2026 meeting, and the EBA published a mission statement.

Market impact

The sources provide specific figures on market expectations and balance sheet operations. The ECB account states that expectations for the ECB's terminal rate had risen above 3% for the first time during this hiking cycle, and that markets had priced in 84 basis points of hikes overall by the end of 2027, compared with 64 basis points at the time of the July meeting. Respondents to the Survey of Monetary Analysts took a more benign view, with the median expectation suggesting only a final rate hike at the September meeting. In the United States, monetary policy expectations pointed to a somewhat higher terminal rate, with markets pricing in between one and two rate hikes in 2026. The account notes that the global rise in long-term yields had originated in the United States, where high private and public issuance, concerns about the fiscal trajectory and uncertainty about inflation had pushed yields higher. Since the July meeting, the euro area nominal overnight index swap yield curve had shifted higher in a broadly parallel manner. The Bank of England notice states that APF gilt sales would be conducted at an annualised pace of £20 billion a year, with £222 billion of gilts maturing before 2035 retained to maturity, £120 billion of the longest-dated gilts held to maturity to back banknotes, and £146 billion of gilts maturing between 2035 and 2049 subject to the potential sales model. Of the 1.75% 2049 gilt, £7.8 billion will be retained to back banknotes while £15.0 billion will be sold. Bank APF auctions will pause in the meantime.

Why it matters

The Bank of England's notice sets out a multi-year path to reduce the stock of UK government bond purchases held for monetary policy purposes to zero, which the source describes as annual sales of £20 billion alongside maturing gilts. The decision to retain £222 billion of gilts maturing before 2035 to maturity and £120 billion of the longest-dated gilts to back banknote issuance means that a substantial portion of the APF portfolio will not be sold. For the £146 billion of gilts maturing between 2035 and 2049, the proposed model of APF sales to the Government, with HMT instructing the DMO to purchase at market prices and in a pre-defined manner, could change the composition of gilt market flows. The Bank will review progress before April 2027, and implementation could begin in a way that allows this to be incorporated into the DMO's annual financing remit. The ECB account highlights that markets had reassessed the persistence of the inflation shock, with the terminal rate expectation rising above 3% and 84 basis points of hikes priced by the end of 2027. The account also notes that the global rise in long-term yields had originated in the United States, driven by high private and public issuance, concerns about the fiscal trajectory and uncertainty about inflation. These factors suggest that balance sheet unwind and fiscal issuance are interacting in ways that the sources describe as putting upward pressure on long-term yields.