Photographer: Carla Gottgens / Bloomberg
Photographer: Carla Gottgens / Bloomberg
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Australia’s reserve bank doubled its bond purchases on Monday, boosting the biggest drop in yields in a year, as policymakers around the world are trying to check bets on inflation.
The central bank said it plans to buy more than $ 3 billion worth of older securities, following a surprising increase in short-term debt acquisitions at the end of last week. Japanese government bonds have also advanced, while those in New Zealand have risen as a result of guilt in the US market.
Investors will seek more assurance from the RBA on Tuesday as its board meets to consider monetary settings that are being tested by rising currencies and rising commodity prices. Markets are also expecting more from key global figures, including Federal Reserve Chairman Jerome Powell, who will deliver this week what is likely to be his latest public comments ahead of a mid-month policy meeting.
“The Fed may realize that telling the market it’s okay with what happened is just a red flag for a bull,” said Eric Robertsen, chief strategist at Standard Chartered Bank. “The RBA is in the same camp with every major central bank – they want their savings to recover, but they are increasingly dependent on low interest rates.”
Bond markets have set prices in accelerating inflation, in anticipation of a rapid global economic recovery, which will leave central banks unable to maintain free holdings. Political decision-makers have pushed back billions of dollars around economies, thanks to monetary infusions, extensive tax programs and vaccination launches, and investors have seen pressure to raise prices on the horizon.
US Treasury yields ended an already tumultuous week on Friday, with another sudden move – suddenly shifting downwards as traders slipped into their latest activity for the month. The 10-year yield fell by up to 14 basis points on the back of the month rebalancing from stocks to bonds. They were slightly changed on Monday during Asian trading.
Read more: Dizzy bond traders may lean for more pain as Fed speakers line up
This set the stage for the opening of transactions in Asia on Monday, with the 10-year Australian yield immediately falling 19 basis points. Then it dropped to 32 basis points to 1.60% after the RBA said it would buy $ 4 billion ($ 3.1 billion) of long-term bonds – double the regular amount – in a regular operation.
The RBA is expected to maintain its broad broad settings on Tuesday: a key interest rate and a three-year bond yield target of 0.10% and a $ 100 billion QE program for older securities. He surprised last month by announcing a second round of QE, when the current tranche expires in mid-April and could change his buying plans on Tuesday.
Read more: Australia Central Bank Girds for All-Out Defense of Yield Target
“Markets will be looking for a strong response to the extreme volatility of the bond market,” said Su-Lin Ong, head of Australia’s fixed and economic income strategy at the Royal Bank of Canada. “At the very least, we would expect an increase in the control of the yield curve for the next two weeks, possibly including more acquisitions on non-QE operating days.”
One area of intense interest is how long the three-year bond yield control continues.
The shape of the Australian yield curve suggests that markets are unconvinced by current policy guidelines, said Martin Whetton, head of fixed income and foreign exchange strategy at the Commonwealth Bank of Australia.
“The obvious V-shaped recovery in the Australian economy is testing the belief that the RBA will be on hold until 2024,” Whetton said.
He expects the central bank to drop control of the yield curve this year, but to keep interest rates constant in line with its current message.