RBA’s Strong Resolve Pushes 3-Yr Yield Below Target at Auction

• Published on
• 16 Nov 2020, 04:40 PM

By Sophia Rodrigues

For the first time the Reserve Bank of Australia has displayed strong commitment in defending its yield target policy, with the three-year yield dropping below its 0.10% target at the bond-buying auction.

This is the best outcome the RBA has managed since it launched its three-year yield target policy in March.

At the auction Monday, the weighted average yield on the April 2024 bond came at 0.0993%, with the cut-off yield at 0.0950%. This was lower than the three-year target of 0.10%.

The fall in yield is a result of RBA’s resolve in defending its 0.10% by buying the April 2024 bond at three consecutive opportunities. Last Monday, the RBA bought A$1.5 billion, following it up with A$2.0 billion on Thursday and A$1.5 billion today.

The weighted average yield at the first and second auction was 0.1150% and 0.1075% respectively.

RBA OWNS 36% OF April 2024

Back in March, the RBA commenced its three-year yield target policy at 0.25% and lowered it to 0.10% at the monetary policy decision on November 3.

During this time, the RBA never managed to get the weighted average yield below the 0.25% .The closest it got was on August 13 when the cut-off yield on the April 2023 bond was 0.2475% but the weighted average came in at 0.2513%.

The RBA’s three-year target applies to the nearest three-year government bond, so in the initial months, the bond it targeted was the April 2023. From this month, the RBA is targeting the next nearest three-year bond which is the April 2024.

The RBA has so far bought A$11.9 billion of the April 2024 bond, including today’s purchases. This compares with the total bond line of A$32.9 billion.

--Contact: Sophia@centralbankintel.com