QE and the Gilt Market: A Disaggregated Analysis

46 Pages Posted: 28 Oct 2012

See all articles by Martin Daines

Martin Daines

Bank of England

Michael Joyce

Bank of England - Monetary Analysis

Matthew Tong

Bank of England

Date Written: October 26, 2012

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.

Keywords: QE, asset purchases, gilt market, auctions

JEL Classification: G12, E43, C23, C31, C33

Suggested Citation

Daines, Martin and Joyce, Michael and Tong, Matthew, QE and the Gilt Market: A Disaggregated Analysis (October 26, 2012). Bank of England Working Paper No. 466, Available at SSRN: https://ssrn.com/abstract=2167311 or http://dx.doi.org/10.2139/ssrn.2167311

Martin Daines

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Michael Joyce (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom
44 (0)207 601 4444 (Phone)

HOME PAGE: http://www.bankofengland.co.uk

Matthew Tong

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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