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Dissecting long-term Bund yields in the run-up to the ECB's Public Sector Purchase Programme

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  • Lemke, Wolfgang
  • Werner, Thomas

Abstract

Starting in summer 2014, markets began to build up expectations that the European Central Bank (ECB) would embark on large-scale sovereign bond purchases. The ECB's Public Sector Purchase Programme (PSPP) was eventually announced on 22 January 2015 and purchases started in March. Both during the run-up phase to the PSPP announcement day and for the day itself, German government bond yields declined significantly. Using an affine term structure model, we evidence that the yield declines are almost fully attributable to a decline in the term premium as opposed to the expectations component. This speaks in favour of the conjecture that the PSPP transmits to long-term yields mainly via a portfolio re-balancing channel rather than a (policy rate) signalling channel. The results prove robust against changing the number of factors in the model, the estimation sample and the estimation approach.

Suggested Citation

  • Lemke, Wolfgang & Werner, Thomas, 2018. "Dissecting long-term Bund yields in the run-up to the ECB's Public Sector Purchase Programme," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181594, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181594
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    Citations

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    Cited by:

    1. Speck, Christian, 2023. "Pricing the Bund term structure with linear regressions – without an observable short rate," Discussion Papers 08/2023, Deutsche Bundesbank.
    2. Coenen, Günter & Montes-Galdón, Carlos & Saint Guilhem, Arthur & Hutchinson, John & Motto, Roberto, 2022. "Rate forward guidance in an environment of large central bank balance sheets: a Eurosystem stock-taking assessment," Occasional Paper Series 290, European Central Bank.
    3. Brand, Claus & Goy, Gavin W & Lemke, Wolfgang, 2020. "Natural rate chimera and bond pricing reality," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224546, Verein für Socialpolitik / German Economic Association.
    4. Andrejs Zlobins, 2023. "Is There a Portfolio Rebalancing Channel of QE in Latvia?," Working Papers 2023/05, Latvijas Banka.
    5. Fabian Eser & Wolfgang Lemke & Ken Nyholm & Sören Radde & Andreea Liliana Vladu, 2023. "Tracing the Impact of the ECB’s Asset Purchase Program on the Yield Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 359-422, August.
    6. De Santis, Roberto A. & Zimic, Srečko, 2022. "Interest rates and foreign spillovers," European Economic Review, Elsevier, vol. 144(C).
    7. Andrejs Zlobins, 2021. "On the Time-varying Effects of the ECB's Asset Purchases," Working Papers 2021/02, Latvijas Banka.
    8. James Costain & Galo Nuño & Carlos Thomas, 2022. "The Term Structure of Interest Rates in a Heterogeneous Monetary Union," Working Papers 2223, Banco de España.
    9. Albertazzi, Ugo & Barbiero, Francesca & Marqués-Ibáñez, David & Popov, Alexander & Rodriguez d’Acri, Costanza & Vlassopoulos, Thomas, 2020. "Monetary policy and bank stability: the analytical toolbox reviewed," Working Paper Series 2377, European Central Bank.
    10. Katharina Bergant & Michael Fidora & Martin Schmitz, 2020. "International Capital Flows at the Security Level – Evidence from the ECB’s Asset Purchase Programme," IMF Working Papers 2020/046, International Monetary Fund.
    11. Andrea Carriero & Lorenzo Ricci & Elisabetta Vangelista, 2022. "Expectations and term premia in EFSF bond yields," Working Papers 54, European Stability Mechanism.
    12. Bergant, Katharina & Fidora, Michael & Schmitz, Martin, 2018. "International capital flows at the security level � evidence from the ECB�s asset purchase programme," ECMI Papers 13926, Centre for European Policy Studies.
    13. Rostagno, Massimo & Altavilla, Carlo & Carboni, Giacomo & Lemke, Wolfgang & Motto, Roberto & Saint Guilhem, Arthur & Yiangou, Jonathan, 2019. "A tale of two decades: the ECB’s monetary policy at 20," Working Paper Series 2346, European Central Bank.
    14. Ciccarelli, Matteo & Darracq Pariès, Matthieu & Priftis, Romanos & Angelini, Elena & Bańbura, Marta & Bokan, Nikola & Fagan, Gabriel & Gumiel, José Emilio & Kornprobst, Antoine & Lalik, Magdalena & Mo, 2024. "ECB macroeconometric models for forecasting and policy analysis," Occasional Paper Series 344, European Central Bank.

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    More about this item

    Keywords

    term structure of interest rates; large-scale asset purchases; term;
    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

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