Did the Fed’s LSAPs reduce the yields on 10-year Treasuries by about 100 basis points?
Greenlaw and al. use a large population of possible events and conclude:
We find that Fed actions and announcements were not a dominant determinant of 10-year yields and that whatever the initial impact of some Fed actions or announcements, the effects tended not to persist. In addition, although the Fed began the transition to a smaller balance sheet sooner than the market had expected, the announcements and implementation of the balance-sheet reduction do not seem to have affected rates much. These observations lead us to conclude that the effects of large scale asset purchases (LSAPs) are likely more modest than generally claimed.
A Skeptical View of the Impact of the Fed’s Balance Sheet
Authors: David Greenlaw, James D. Hamilton, Ethan S. Harris, Kenneth D. West
From: Morgan Stanley, University of California at San Diego, Bank of America Merrill Lynch, University of Wisconsin
Are event studies the best way to evaluate the effects of LSAPs?
William Dudley suggests three reasons why event studies might not accurately evaluate the impact of LSAPs: a) if the announced program is smaller than anticipated bond yields could rise the day of the announcement; b) economic data releases that change expectations of LSAPs would register their impact on yields on “non-Fed” days; and c) measures of the yield level do not capture the impact of LSAPs on yield volatility.
Comments on “A Skeptical View of the Impact of the Fed’s Balance Sheet”
By: William C. Dudley – New York Fed
If LSAPs are ineffective then increase the dosage
The amount of bonds available to private investors [in the Eurozone] is currently so low that investors are willing to absorb new bonds without requiring much higher compensation. Supply is effectively constraining demand. This becomes clear if we recall the statutory needs of many investors for safe and liquid assets. In these circumstances, only very large changes in the expected supply of bonds can cause yields to rise more meaningfully.
The persistence and signalling power of central bank asset purchase programmes
By: Benoît Cœuré – ECB
