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The yield curve impact of government debt issuance surprises and the implications for QT

Author

Listed:
  • Joyce, Michael

    (Bank of England)

  • Lengyel, Andras

    (Bank of England)

Abstract

We analyse the market reaction of yields to UK government debt auction announcements to quantify the potential impact of quantitative tightening (QT) by the Bank of England. Our results suggest that the yield reaction to debt issuance surprises comes through both duration risk and local supply channels, and depends critically on the level of market stress. Based on these estimates, a fully unanticipated announcement that mimics the Bank’s first annual QT programme would raise 10-year yields by 20 basis points under low market stress, with the impact from passive unwind broadly equivalent to that from active sales.

Suggested Citation

  • Joyce, Michael & Lengyel, Andras, 2024. "The yield curve impact of government debt issuance surprises and the implications for QT," Bank of England working papers 1097, Bank of England.
    • Handle: RePEc:boe:boeewp:1097
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2024/the-yield-curve-impact-of-debt-issuance-and-the-implications-for-qt.pdf
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    More about this item

    Keywords

    Yield curve; government debt auctions; quantitative easing; quantitative tightening;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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