Is There a Case for the Public Investment Corporation to Increase Its Holdings of Government Debt Securities?

Is there a case for the Public Investment Corporation (PIC) to increase its holdings of government debt securities? Yes, there is. We find that incremental positive shocks to the share (stock effects) and growth rate (flow effects) of government bonds in the PIC balance sheet result in a decline in the ten-year government bond yield. Large positive shocks to the share and growth rates of government bonds in the PIC balance sheet result in a larger decline in the ten-year government bond yield. The ten-year government bond yield declines in response to positive shocks to the South African Reserve Bank (SARB) assets growth rate and the PIC government bonds purchases growth rate channel amplifies these shock effects. In addition, persistent positive shocks to government bond purchases by the PIC on the ten-year government bond yields whether measured as a growth rate (flow) or as a share (stock) have a much larger downward effect compared to transitory (non-persistent) shocks. Thus, it is a worthwhile strategy to use the PIC balance sheet alongside the SARB balance sheet to achieve the national objectives of price stability, financial stability and macro-economic stability in a prudent manner. This is especially the case given that the effects of the bond purchases by the PIC can reinforce large-scale asset purchases by the SARB in the primary and secondary market, as the PIC can participate in both segments of the market. However, the effects will depend on the design of the PIC bond purchase programme by the policymakers involved, because it matters how a given stock of asset purchases is accumulated and composed.