Moreover, by virtue of the stock effect, the yield compression was expected to be long-lasting and to halve only after five years. Owing to changes in macroeconomic conditions and the need to adapt the monetary policy response, several recalibrations were made to the APP. [28] Accordingly, as is shown in Chart 9, the contemporaneous term premium impact changed over time, reaching its maximum of more than 100 basis points in mid-2016, when markets were expecting a significant expansion of the APP in light of increased uncertainty induced by the Brexit referendum outcome. When the end of net purchases was announced in June 2018, the impact on ten-year sovereign bond yields was estimated to be around 90 basis points. The additional duration extraction associated with the renewed net purchases that started this month has contributed to a further compression of the term premium. Currently, staff estimate the euro area sovereign ten-year rate to be more than 100 basis points lower than in a counterfactual where the APP never happened, and the curve to be distinctly flatter (see again Chart 8). Finally, there are also complementarities between the APP and other instruments, which I will briefly summarise. [29] First, the APP helps maintain the excess liquidity conditions that keep the euro short-term rate € the interbank overnight rate in the euro area, near the ECB’s deposit facility rate, which in turn contributes to avoiding undesirable bouts of interest rate volatility.
SPEECH  The yield curve and monetary policy  Speech by Philip R. Lane, Member of the Executive Board of the ECB, Public Lecture for the Centre for Finance and the Department of Economics at University College London London, 25 November 2019  Introduction It is a pleasure to speak this evening at University College London (UCL). In my contribution, I wish to share some thoughts about the yield curve and monetary policy. [1] UK data offer scholars a unique opportunity to take a very long view: the long-term nominal gilt yields shown in Chart 1 reach all the way back to 1826, the founding year of UCL. Over the past 200 years, gilt yields have never been as low as today. That long-term nominal yields have decreased substantially over recent decades is not specific to the United Kingdom but applies across advanced economies: long-term German yields and euro area overnight index swap (OIS) rates (which are the closest measure of a euro area-wide risk-free rate available) are currently ranging near record lows. [2], [3] Long-term rates in the euro area have even reached negative territory. [4]  Chart 1 UK, US, DE and euro area OIS long-term interest rates (percentages per annum)  Sources: Bank of England, Bloomberg, FRED, Jordà et al. (2019), Thomson Reuters. Notes: For the United Kingdom, the series is the rate on a consol, taken from the Bank of England data series “A Millennium of UK Data” (Thomas and Dimsdale, 2017).