The Bank of England’s financial stability report for July revealed activity in fixed income markets has been subdued, although not yet fully tested since the EU referendum.
The report explained markets have generally remained resilient since the UK voted to leave the European Union.
It said: “Following the referendum, markets have generally functioned well with no apparent impairment of price discovery.”
Electronically traded markets including foreign exchange and equity markets, have also proved “resilient”.
However, the Bank of England has stressed some bond markets will likely be tested by high demand for liquidity, which remains “potentially fragile”.
The stability report said: “Further adjustment of market prices is possible, with the potential for a material rebalancing of investor portfolios.
“Order flow imbalances could lead to higher liquidity premia in a range of assets, amplifying adjustments in market prices.”
Fragilities in market functioning are at risk of “reductions in provision of market liquidity services” in core markets, the report said.
The Bank of England concluded the current outlook for UK financial stability is “challenging”, as fragilities in financial market functioning are to be tested throughout the period of prolonged and heightened uncertainty.