tend to decline by more than those of short - term bonds. a first look at the stylised facts using the same approach that i outlined earlier confirms this pattern for the euro area. extracting a quantitative easing factor from high - frequency interest rates and other financial market data confirms that news about ecb asset purchases had yield compression and flattening effects on the term structure, as shown in chart 6. chart 6 estimated effect of quantitative easing surprise on the ois curve ( basis points ) sources : based on altavilla et al. ( forthcoming ). notes : surprise impact normalised to 10 basis points for the ten - year maturity. the academic literature distinguishes broadly between two channels through which this policy works : signalling and portfolio rebalancing. under the signalling channel, central bank asset purchases serve as a commitment device to keep policy rates at low levels for an extended period of time. under the portfolio rebalancing channel, the central bank ’ s withdrawal of net bond supply from the market induces investors to reshuffle their portfolios, and these changes in demand - supply constellations affect bond prices and yields. under the signalling channel, the expectations component of bond yields decreases upon news about asset purchases, whereas under the portfolio rebalancing channel, the term premium component is compressed. the expectations and the term premium components cannot be observed separately. econometric modelling is required to discriminate between the two components and provide a deeper understanding of the transmission channels of asset purchases. an important episode studied by ecb researchers is the period before the announcement of the app in january 2015. between summer 2014 and the official announcement, some events reinforced the view of market participants that ecb government bond purchases were likely to start in the near future. the events examined by ecb staff occurred between the governing council meetings on 3 september 2014 and 22 january 2015, the day when the ecb announced the app. cumulating across these events, the long - term bund rate declined by 30 basis points. this is the bar that you see on the left in chart 7. with the help of an econometric term structure model, ecb staff have decomposed that change into the contribution of changes in average short rate expectations and the term premium. [ 21 ] chart 7 shows that it is the term premium that accounts for essentially the entire decline in yields. on the day of the app announcement itself ( 22 january 2015 ), the ten - year bund rate decreased by

based on altavilla et al. ( forthcoming ). notes : the surprise impact is normalised to 10 basis points for the six - month ( lhs ) and two - year maturity ( rhs ), respectively. an instructive way to rationalise those patterns is by reference to the expectations hypothesis of the term structure, according to which the long - term rate on a bond equals the average of short - term rates expected to prevail over the maturity of the bond. under this assumption, a contemporaneous surprise in the shortterm rate influences the short end of the curve one for one, while long rates will typically be affected less than one for one. by comparison, a forward guidance surprise can be interpreted as leaving the current rate untouched while affecting the short - term interest rate path in the near and medium term. taking an average over such an expected rate path gives rise to the observed hump - shaped footprint. however, simple versions of the expectations hypothesis find little support in the data. besides the average of expected short - term rates ( the “ expectations component ” ), long - term bond rates typically contain term premia, which are time - varying. in a nutshell, term premia are an average of expected excess returns over the lifetime of the bond, where the excess return measures the return from investing in a longterm bond over a short time period in excess of the risk - free short - term rate prevailing over that period. accordingly, term premia reflect both the riskiness of long - term bonds and the compensation required by investors for that risk. abstracting from credit and liquidity risk, the most prevalent source of risk for longterm debt is duration risk : that is, the sensitivity of the bond price to changes in the yield curve. i will come back to this when discussing the duration channel of large - scale central bank asset purchases. monetary policy exerts its effects on the yield curve not only through pure rate expectations but also through term premia. chart 4 shows a model - based estimate of the yield curve response to a change in policy rates for the euro area. the surprise used here is a combination of what i previously described as a pure rate surprise and a forward guidance surprise. it therefore affects yields across all maturities. while chart 4 shows that changes in rate expectations explain the bulk of the yield curve response, part of it is attributable to changes in term premia. chart 4 instantaneous impact