Unexpected Supply Effects of Quantitative Easing and Tightening

To analyse the evolution of the effects of quantitative easing (QE) and tightening (QT) across consecutive announcements, we focus on their unexpected component. Treasury yield sensitivities to QT supply surprises are on average larger than sensitivities to QE surprises, implying supply effects did not diminish during periods of market calm amid economic expansion. Yield sensitivities to later QE and QT surprises do not fall monotonically, thus supply shocks seemed to remain powerful. Finally, yield sensitivities are amplified by the amount of interest-rate uncertainty prevailing before announcements, implying that turning points in the balance sheet policy tended to elicit larger reactions.