Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
I am interested in receiving a more complete explanation of the bond buying programme of the RBA. The Au Govt is selling the bonds? The RBA (another arm of the Govt) is buying. It is bidding up the price therefore reducing the yield? Correct? Outbidding other buyers? Interesting long term implications for the value of money if overdone. Henry R
Hi Henry,
The key is what bonds are they buying and at present the focus is very much on the short-end which is illustrated below i.e. Through bond purchases the RBA is holding 3-year bond yields near 0.1% whereas the 10-years have been allowed to more than double in 2021, almost reaching 2% last week.
If the RBA do get the balance wrong and we see inflation rally out of control the value of money will fall as it fails to keep step with rising prices.
The government is hoping that all of its stimulus efforts results in a stronger economy which by definition increases their revenue through rising taxes as we all make more money.
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