The Bank for International Settlements published a working paper analysing how monetary policy shocks transmit to private equity (PE) acquisition activity. Using measures of policy surprises along the US yield curve, the authors find that contractionary shocks affecting the short end tend to dampen PE deal-making by reducing deal volumes, leverage and deal prices, while shocks to longer-term yields have weaker effects. The study uses a deal-level dataset of around 54,000 PE transactions (January 2000 to January 2020) drawn from LSEG Refinitiv and instruments policy stance with high-frequency identified Treasury yield surprises adjusted to remove the “information effect”. Results point to a credit channel driving lower deal volumes and reduced use of leverage, and a valuation channel driving lower deal pricing, with a 100 basis point unexpected tightening at the short end associated with an estimated decline of about 0.5% in monthly aggregate PE deal value and a 25 basis point tightening associated with a roughly 0.86% drop in deal value-to-EBITDA multiples in the baseline IV specification. For long-end (10-year) shocks, the analysis finds some bearing on aggregate deal volumes but no robust transmission to deal pricing.
Bank for International Settlements 2026-01-26
Bank for International Settlements working paper finds short-end monetary tightening cuts private equity deal volumes leverage and valuations
The Bank for International Settlements released a working paper examining monetary policy shocks on private equity acquisitions, finding that contractionary shocks at the short end of the US yield curve reduce deal volumes, leverage, and prices, while long-term yield shocks have weaker effects. The study, using a dataset of about 54,000 transactions, highlights a credit channel affecting deal volumes and leverage, and a valuation channel impacting pricing.