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QE and the Gilt Market: a Disaggregated Analysis

  • Michael A.S. Joyce
  • Matthew Tong

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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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 122 (2012)
Issue (Month): 564 (November)
Pages: F348-F384

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Handle: RePEc:ecj:econjl:v:122:y:2012:i:564:p:f348-f384
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  1. Christopher J. Neely, 2010. "The large scale asset purchases had large international effects," Working Papers 2010-018, Federal Reserve Bank of St. Louis.
  2. Francis Breedon & Joe Ganley, 1996. "Bidding and Information: Evidence from Gilt-Edged Auctions," Bank of England working papers 42, Bank of England.
  3. 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.
  4. 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.
  5. Hongjun Yan & Jinfan Zhang & Dong Lou, 2011. "Anticipated and Repeated Shocks in Liquid Markets," FMG Discussion Papers dp684, Financial Markets Group.
  6. Harrison, Richard, 2012. "Asset purchase policy at the effective lower bound for interest rates," Bank of England working papers 444, Bank of England.
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