Analysis of the Spillover Effect of the US Quantitative Easing Policy on China's Multi-level Bond Market

Abstract

This paper focuses on the spillover effect of quantitative easing (QE) policy adopted by the United States on China's multi-level bond market under the outbreak of the epidemic in 2020. Since the US launched QE in March 2020 and ended it in October 2021, this paper selects the yields of one-year treasury bonds, financial bonds, and local government bonds in this period to represent different issuers and selects US non-borrowed reserve as an indicator to measure the level of capital overflow. Then, this paper adopts vector autoregressive (VAR) model for empirical analysis. The results of the model represent that the QE has some influence on China’s bond market, and this impact has different effects on the bonds of different issuers. Compared with financial debt and local government debt, national debt is less impacted, and its impact time lags behind others’. The possible reason is that the bonds issued by different issuers have different abilities to bear market risks, so they react in various ways. Finally, based on the research results, this paper puts forward some policy suggestions combined with the current situation.