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QE and the gilt market: a disaggregated analysis

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  • Daines, Martin

    ()
    (Bank of England)

  • Joyce, Michael

    ()
    (Bank of England)

  • Tong, Matthew

    ()
    (Bank of England)

Abstract

We examine the impact of the first phase of the Bank of England’s quantitative easing (QE) programme during March 2009 to January 2010 on the UK government bond (gilt) market, using high-frequency disaggregated data on individual gilts. We find that: QE announcements took varying amounts of time to get incorporated into market prices and had significant effects on the shape of the term structure; the Bank’s reverse auctions were initially associated with additional yield reductions on gilts both eligible and ineligible for purchase; and, allowing for fiscal news and the changing macroeconomic outlook, QE appears to have had persistent effects on gilt yields. In general, our results provide evidence of local supply and duration risk effects consistent with imperfect asset substitution, which has implications beyond the financial crisis for how we think about price determination in the gilt market.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 466.

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Length: 46 pages
Date of creation: 26 Oct 2012
Date of revision:
Handle: RePEc:boe:boeewp:0466

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Keywords: QE; asset purchases; gilt market; auctions;

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  1. Vayanos, Dimitri & Vila, Jean-Luc, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," CEPR Discussion Papers 7547, C.E.P.R. Discussion Papers.
  2. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  3. Harrison, Richard, 2012. "Asset purchase policy at the effective lower bound for interest rates," Bank of England working papers 444, Bank of England.
  4. Francis Breedon & Joe Ganley, 1996. "Bidding and Information: Evidence from Gilt-Edged Auctions," Bank of England working papers 42, Bank of England.
  5. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
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Cited by:
  1. Falagiarda, Matteo, 2013. "Evaluating Quantitative Easing: A DSGE Approach," MPRA Paper 49457, University Library of Munich, Germany.
  2. Gürkaynak, Refet S. & Wright, Jonathan, 2013. "Identification and Inference Using Event Studies," CEPR Discussion Papers 9388, C.E.P.R. Discussion Papers.
  3. Timothy Sharpe & Martin Watts, 2013. "Unconventional Monetary Policy in the UK: A Modern Money Critique," Economic Issues Journal Articles, Economic Issues, vol. 18(2), pages 41-64, September.
  4. Michael E. Cahill & Stefania D’Amico & Canlin Li & John S. Sears, 2013. "Duration risk versus local supply channel in Treasury yields: evidence from the Federal Reserve's asset purchase announcements," Finance and Economics Discussion Series 2013-35, Board of Governors of the Federal Reserve System (U.S.).
  5. Matteo Falagiarda & Stefan Reitz, 2013. "Announcements of ECB Unconventional Programs: Implications for the Sovereign Risk of Italy," Kiel Working Papers 1866, Kiel Institute for the World Economy.
  6. Michael Joyce & David Miles & Andrew Scott & Dimitri Vayanos, 2012. "Quantitative Easing and Unconventional Monetary Policy – an Introduction," Economic Journal, Royal Economic Society, vol. 122(564), pages F271-F288, November.

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