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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.

Suggested Citation

  • Daines, Martin & Joyce, Michael & Tong, Matthew, 2012. "QE and the gilt market: a disaggregated analysis," Bank of England working papers 466, Bank of England.
    • Handle: RePEc:boe:boeewp:0466
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    References listed on IDEAS

    as
    1. Dimitri Vayanos & Jean-Luc Vila, 2009. "A Preferred-Habitat Model of the Term Structure of Interest Rates," NBER Working Papers 15487, National Bureau of Economic Research, Inc.
    2. Dong Lou & Hongjun Yan & Jinfan Zhang, 2013. "Anticipated and Repeated Shocks in Liquid Markets," Review of Financial Studies, Society for Financial Studies, vol. 26(8), pages 1891-1912.
    3. J. M. Culbertson, 1957. "The Term Structure of Interest Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 71(4), pages 485-517.
    4. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 215-287.
    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.
    6. Harrison, Richard, 2012. "Asset purchase policy at the effective lower bound for interest rates," Bank of England working papers 444, Bank of England.
    7. Breedon, Francis & Ganley, Joe, 2000. "Bidding and Information: Evidence from Gilt-Edged Auctions," Economic Journal, Royal Economic Society, vol. 110(466), pages 963-984, October.
    8. Joyce, Michael & Tong, Matthew & Woods, Robert, 2011. "The United Kingdom’s quantitative easing policy: design, operation and impact," Bank of England Quarterly Bulletin, Bank of England, vol. 51(3), pages 200-212.
    9. Neely, Christopher J., 2015. "Unconventional monetary policy had large international effects," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 101-111.
    10. Andrés, Javier & López-Salido, J David & Nelson, Edward, 2004. "Tobin's Imperfect Asset Substitution in Optimizing General Equilibrium," CEPR Discussion Papers 4336, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    QE; asset purchases; gilt market; auctions;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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