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Gilt auctions and secondary market dynamics

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  • Fuhrer, Lucas Marc
  • Giese, Julia

Abstract

This letter shows how changes in investor demand for United Kingdom government bonds, also called gilts, affect the shape of the yield curve. To clearly identify the impact of changes in investor demand, we analyse gilt auctions and find that surprises in investor demand, measured by deviations in the bid-to-cover ratio from its long-term average, persistently affect yields in particular at the long and short end of the curve and that this effect is more pronounced in volatile market conditions. Moreover, we show that demand shocks transmit across the yield curve, in particular to neighbouring bonds.

Suggested Citation

  • Fuhrer, Lucas Marc & Giese, Julia, 2021. "Gilt auctions and secondary market dynamics," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319309134
    DOI: 10.1016/j.frl.2019.101400
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    1. Andras Lengyel & Massimo Giuliodori, 2022. "Demand Shocks for Public Debt in the Eurozone," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 1997-2028, October.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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