Quantitative Easing and the Cost of Issuing UK Government Debt during SARS-CoV-2, Brexit and the Financial Crisis

Abstract

I estimate the costs of issuing UK government debt by auction from the inception of the market in 1987 through the financial crisis and the phases of QE and into the current period of policy responses to SARS-CoV-2. Issuance costs decreased from the start of QE and have remained stable since, improving slightly in 2020. Variation in issuance costs is mostly explained by benchmark status, volatility and pent-up demand. Cost estimates do not show a strong relation to maturity suggesting that no one set of gilt market investors is attracting habitat rents.

Keywords: Quantitative easing, UK government debt, auctions, issuance costs, preferred habitat, SARS-CoV-2, Brexit, financial crisis

JEL Classification: G01, G12