Gilt yields dipped at the beginning of the scheme but retraced some of these declines late last month, according to the Bank of England.
First effects of the "money-printing" quantitative easing programme from the Bank of England have been muted, new data reveal.
According to the Bank, around £13 billion of government bonds - or gilts - were purchased through the scheme in March, including £6 billion of the assets over the last week of the month. Quantitative easing sees the institution buy up a mix of corporate bonds and gilts, in order to push bond yields down and crank up the money supply to commercial banks in the recession.
The three-month, £75 billion programme began in March, after the Bank cut interest rates to an all-time low of 0.5 percent and thereby limited the scope of rate reductions alone to boost lending flows. The radical move also comes against a background of fears over the UK being able to pay back its bond debt due to the recent dramatic deterioration in the public finances.
In last week's Budget, Alistair Darling said that the UK would be £175 billion in the red this year, debt which will be funded by bond sales. Analysts are concerned that investors will stop buying the bonds due to Britain being seen as a credit risk - which would push yields up and slow lending flows once more, as well as causing a further worsening of the government's balance sheet.
The latest Bank of England figures provide little reassurance on this point, showing that while gilt yields initially dipped at the beginning of the programme - with the ten-year government bond retreating by over 50 basis points - yields crept back up as the month went on. The Bank of England figures also do not take into account more recent movements on the bond markets following the Budget announcement, when still more of the decline in gilt yields was erased.
The Bank of England commented: "The announcements and subsequent purchases of assets by the [quantitative easing] facility during [January-March] 2009 were followed by falls in yields on medium to long-term UK government bonds. Spreads on sterling investment-grade non-financial commercial paper and corporate bonds also fell somewhat over the quarter leaving yields on those assets lower."
