QE and the gilt market: a disaggregated analysis

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.