RBA’s Bond-Buying List Likely To Expand First Time Since QE Introduction

(This story was first published on Monday, August 16 at 2:10 PM as an email to premium subscribers. It is now being made available to all)

By Sophia Rodrigues

(Sydney, August 16, 2021)—The universe of bonds in the Reserve Bank of Australia’s bond-buying list is likely to expand for the first time since the Quantitative Easing program was introduced in November last year, giving it a bit more flexibility in conducting the program.

Sometime in September – more likely following the end of the current bond-buying program, the RBA is likely to add the November 2032 Australian government bond to its bond-buying list. This is likely to coincide with the expiry of the ASX’s September 2021 10-year bond futures contract.

Since the RBA introduced the bond-buying program in November last year, the longest bond in the 10-year bond futures contract (December 2020, March 2021, June 2021, and September 2021) has remained at the May 2032 bond. For the first time since then, the December 2021 contract will include the November 2032 bond.

When the RBA decided on the May 2032 bond as the longest bond it would buy, it was based on the 10-year year bond futures basket. So, it makes sense now to add that bond.

At the short end, the November 2024 bond will remain in the RBA’s bond-buying list, so addition of November 2032 bond will mean an expansion to the list.

Currently, the size of the November 2032 bond line is A$15.8 billion. The bond was issued via syndication in April 2021 for A$14.0 billion, and in terms of geography 51.2% of the issue was bought by offshore investors. Sector-wise, 24.3% of the bond was bought by hedge funds and just 10.9% by trading books of banks.

Since then, the bond was issued twice in June and August.

--Contact: Sophia@centralbankintel.com