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The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases

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  • Richard Finlay

    (Reserve Bank of Australia)

  • Dmitry Titkov

    (Reserve Bank of Australia)

  • Michelle Xiang

    (Reserve Bank of Australia)

Abstract

We examine the effect on government bond yields of three Reserve Bank of Australia policy measures implemented following the onset of the COVID-19 pandemic. We also assess the impact of the three measures on government bond market functioning. The three measures were: purchases to support government bond market function over early 2020; the yield target on 3-year Australian government bonds; and the bond purchase program to lower longer-term yields from late 2020 until early 2022. For purchases to support market function, we find that the announcement lowered short-dated Australian Government Securities (AGS) yields, but did not lower longer-dated AGS yields. We also find that such purchases led to lower yields as and when they were implemented, and that they supported market function by lowering bid-offer spreads. For the yield target, we find a substantial announcement effect and moderate implementation effects on yields. Conversely, the yield target appears to have detrimentally affected some aspects of government bond market function. For the bond purchase program, we find an announcement effect of around 30 basis points for longer-term AGS yields, while any implementation effects were small and temporary.

Suggested Citation

  • Richard Finlay & Dmitry Titkov & Michelle Xiang, 2022. "The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases," RBA Research Discussion Papers rdp2022-02, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2022-02
    DOI: 10.47688/rdp2022-02
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    References listed on IDEAS

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    Cited by:

    1. Anthony Brassil, 2022. "The Consequences of Low Interest Rates for the Australian Banking Sector," RBA Annual Conference Papers acp2022-04, Reserve Bank of Australia, revised Dec 2022.
    2. Cañon, Carlos & Gerba, Eddie & Pambira, Alberto & Stoja, Evarist, 2023. "An unconventional FX tail risk story," LSE Research Online Documents on Economics 120052, London School of Economics and Political Science, LSE Library.
    3. Richard Finlay & Dmitry Titkov & Michelle Xiang, 2023. "The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases," The Economic Record, The Economic Society of Australia, vol. 99(326), pages 359-384, September.
    4. Jonathan Hambur & Qazi Haque, 2023. "Can We Use High-Frequency Yield Data to Better Understand the Effects of Monetary Policy and Its Communication? Yes and No!," CAMA Working Papers 2023-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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    More about this item

    Keywords

    market function; yield target; quantitative easing; event study;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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