Freetrade sometimes uses a forecast rate when promoting UK Treasury bills.
UK Treasury bills are issued every week through a tender process. We submit a bid for the yield we consider to be achievable, given our expectations of market conditions, demand, and the Bank of England base rate. If successful in our bid, this is the rate that Freetrade customers lock in.
This means no one knows what the exact yield will be until the result of the auction.
So, what is the forecast based on?
It uses the Bank of England Bank Rate as its starting point.
It then looks at the DMO’s published data on the average weekly market yield for 1-month Treasury bills since April 2015 and compares this to the BoE Bank Rate for each of those weeks.
We then apply a haircut, or discount, to the current BoE Bank Rate based on the maximum difference seen in 90% of historical cases.
We then trim a little more to account for the typical spread seen between the weekly rate Freetrade achieves at tender for its customers and the average rate achieved by the market. Again, this haircut accounts for the difference in 90% of cases.
For instance, on 9 May 2025, we looked at the data and saw that:
- BoE Base Rate was 4.25%
- Since April 2015, the maximum difference between the BoE Base Rate and the average weekly market yield for Treasury bills in 90% of cases was -25 bps
- Since Freetrade launched 1-month Treasury bills, the maximum difference between the Freetrade yield and the average market yield in 90% of cases was -4 bps
4.25% - 25 bps - 4 bps = forecast rate of 3.96%
The forecasting model is reviewed and updated weekly to reflect the latest market data and auction outcomes.
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