The side effects of quantitative easing: Evidence from the UK bond market

• We examine the side-effects of QE for the UK bond market itself.
• We examine the returns to UK bonds before, during and between phases of QE.
• We find that QE reduced the costs of trading and removed some return regularities.
• But, trading in response to the APF calendar could generate temporary excess returns.
• We explore the implications of these results for the costs of bond issuance.

We examine the returns to UK government bonds before, during and between the phases of quantitative easing to identify the side effects for the market itself. We show that the onset of QE led to a sustained reduction in the costs of trading and removed some return regularities. However, controlling for a wide range of market activity, including issuance and QE announcements, we find evidence that investors could have earned excess returns after costs by trading in response to the purchase auction calendar. Drawing on economic theory, we explore the implications of these findings for both the efficiency of the market and the costs of government debt management in both the short and long run.