RBA Lowe Has No Objection to Buying Long-End Bonds But 3-10Yr Most Effective

By Sophia Rodrigues

The Reserve Bank of Australia has no objection in principle to buying government bonds beyond the 10-year term but decided to focus on the 3-10y part of the curve because it was most effective in meeting its goals, Governor Philip Lowe said Tuesday.

Lowe made the comments at the Q&A following his speech titled, “An Economic and Financial Update” that was broadcast live from the RBA building.

Lowe said the RBA’s two objectives in conducting bond-buying via auctions was to meet the three-year bond yield target of 0.25% and to improve market functioning. To do this, the RBA focused on buying bonds in the 3-10year maturity but this buying also helped improve the market for bonds beyond that.

“We don’t have any in-principle objection to buying longer securities but we focused on what we thought was most effective, and that was around the three-year mark and up to ten years,” Lowe said.

On a question on whether he was concerned that the sharp rise in government borrowing would cause dislocation in the bond market, Lowe said he “didn’t have any particular concerns.”

He noted the government made substantial bond issues in recent weeks and will do more in future but there is strong demand from both domestic and overseas investors.

In the speech, Lowe said that given market conditions are more settled at the moment, the RBA will schedule bond-buying auctions three days each week on Mondays, Wednesdays and Thursday but may not necessarily purchase bonds on each of these days.

The RBA would also increase bond purchases or move to daily auctions if conditions warrant, Lowe said.

On the cash rate, Lowe noted the rate has drifted below 0.25% and stood at 0.15% on Tuesday but said this had not come as a surprise to the RBA.

“The very large increase in the balances in Exchange Settlement Accounts has affected the operation of the cash market,” he said.

--Contact: sophia@centralbankintel.com