Australia’s central bank is returning to the government bond market after a three-month hiatus as it aims to re-anchor yields on the three-year security that it targets through its purchasing program.
The Reserve Bank of Australia (RBA) offered to purchase $359 million of federal government securities maturing in April 2023 on Wednesday, under its program to lower yields.
Governor Philip Lowe announced the resumption of bond buying in the policy statement, when the board kept its interest rate and yield target unchanged at 0.25%. Three-year yields have been “a little higher than 25 basis points over recent weeks,” he said, adding that “further purchases will be undertaken as necessary.”
The limited size of Wednesday’s offer reflects market movements following Lowe’s announcement, which saw three-year government bond yields drop to lows 0.252%, from 0.268% at Monday’s close.
Christopher Kent, assistant governor who oversees financial markets at the central bank, gently signalled that RBA may re-enter the secondary market.
“We notice it’s been rising a little bit of late but it does move around from day to day, week to week,” he said of the three-year yield. “That’s something we’re watching closely and we said, if we need to, if it was to move too far away from 25, then we would stand ready to buy more.”
The RBA last purchased bonds on May 6, and acquired $36.8 billion in face value of securities of various maturities issued by federal, state and territory governments since March 20, when it began purchasing notes following an emergency meeting in order to hold down borrowing costs across the economy.
The RBA halted bond buying in May as yields stabilized across the curve and money-market stresses eased. The calm in fixed-income markets allowed federal and state governments to borrow at an unprecedented pace to fund record spending aimed at countering the economic impact of the pandemic. The federal government raised A$85.6 billion last quarter, more than twice as much as the previous record for sales set in the first three months of 2017.
Australia’s currency has surged over the past four months as the RBA’s success in stabilizing markets spurred foreign demand for record debt sales.