The Bank of England’s first round of asset purchases in 2009 and 2010 may have had less impact on gilt yields than the central bank estimated, according to the Bank for International Settlements.
The 200 billion-pound ($313 billion) program lowered yields by as much as 74 basis points, the BIS said in its quarterly review. That compares with an estimate by the Bank of England that the measure reduced yields by 100 basis points.
The U.K. central bank started a new round of bond purchases in October and some policy makers have said more stimulus may be needed. The BIS said further measures may have a limited effect because bond yields are already “very low,” while the effect is smaller the longer the programs last.
According to the BIS, the 200 billion-pound program lowered yields by 27 basis points on average for gilts with a remaining maturity of five to 25 years. The biggest effect was on gilts with a maturity of about 12 years, with yields reduced by as much as 74 basis points, it said.
Bank of England officials said in a paper published in 2010 that gilt yields were “about 100 basis points lower than they would otherwise have been as a result of quantitative easing.”
“Our analysis suggests that the purchases have had a significant impact on financial markets and particularly gilt yields,” the officials said. They added that there is “clearly more to learn about the transmission of those effects to the wider economy.”
Bank of England policy makers announced a further 75 billion pounds of asset purchases on Oct. 6. They said in the minutes of that meeting that they expect the new stimulus, which will be completed in February 2012, to have a similar impact to the original program.