Staff Working Paper No. 1,097
By Michael Joyce and Andras Lengyel
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.
The yield curve impact of government debt issuance surprises and the implications for QT
