800-pound RBA gorilla doubles QE pace

A fash note from Kieran Davies at Coolabah Capital:

  • After defending its 3-year bond yield target last week, this morning the RBA doubled its QE purchases of Commonwealth bonds.  In the current QE programme, the RBA buys Commonwealth bonds twice a week and semi-government bonds once a week. The Commonwealth auctions are normally $2bn apiece, while the semis auction is usually for $1bn of bonds. This morning, the RBA increased the size of the Commonwealth auction to $4bn, double the normal rate, while including the November 2024 bond in its purchases (this is the relevant bond if the RBA decides to extend its 3-year bond yield target later this year). The decisive action has had a material effect on bond yields, with the 10-year bond yield extending its fall to 1.63%, down from 1.92% at the end of last week. 
  • The doubling of the auction raises the risk that the RBA increases the total size of its current QE programme. The RBA already seems likely to adopt blunter language in defending its policy strategy in tomorrow’s policy press release given that Australian bonds have sold off at a faster pace than other countries over recent weeks, while the Australian dollar reached a fresh multi-year high last week.  When QE was introduced in November, the RBA said it would “closely monitor the impact of purchases on market functioning and will adjust the auctions if necessary, including their size, composition and timing”.  However, doubling the size of the auction the day before the Board meeting raises the risk that the RBA decides to increase its current QE programme, either by raising the total amount from $100bn or characterising the $100bn as a minimum amount of purchases. The RBA already plans to extend QE until later this year and CCI expects this will be followed by QE3 and likely QE4, previously noting the risk that the RBA could increase its purchases given the formidable objective of achieving full employment, particularly when the easy monetary policy of the RBA’s peers places upward pressure on the exchange rate.

It looks like the RBA is indeed ready to be the 800-pound gorilla in the market and will defend its rate targets aggressively.

Yields bashed:

It’s a rare thing for me to be too cyclical!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. mikef179MEMBER

    Someone said that when something is a target it is no longer a measure.

    Bring on full-on socialist price-fixing. I’m sure it will all work out great.

  2. MathiasMEMBER

    Is it possible that they are beginning to realise that once Interest Rates fall, the future of the Aussie Dollar ( and all the debt we hold ) is doomed?

    If MB is right, then the future for the Aussie Dollar is looking terrible.

    Is the Coalition about to destroy the Currency?

  3. pfh007.comMEMBER

    Nothing quite so pathetic as a central bank throwing every stick of furniture on the fire to avoid talking about a fundamentally broken monetary system.

    End the banker monopoly of RBA deposit accounts NOW as that it the first step in unwinding the state / private bank monetary cartel..

    We simply do not need banker peddled debts as public money.

    If bankers reckon there is a market for their promises let them go ahead and prove it.

    There are sure to be a few pensioners eager to ‘snap’ up some Westpac Wozza’s or some CBA Golden Koala’s.

  4. The Fed is still not going for yield curve control despite the recent increase in 10y treasury yields. If the RBA jawboning doesn’t work and they really have to keep the printer running full bore without covering fire from the Fed, will this finally sink the AUD, cause monstrous asset price inflation, followed by real out of control CPI increases.?

    • happy valleyMEMBER

      Real CPI increases have been rigged/massively understated since the early 2000s when existing home price increases were stripped out of the measure by Howard, and there’s nothing that will come remotely close that in terms of generating any meaningful inflation unless the Aussie peso goes back to its banana republic days?

    • Why does it have to be the Fed that does yield curve control? Phil Lowe totally has the power to yield curve control US bonds:

      Step 1 – print a few trillion AUD (create excess reserves)
      S2 – buy USD on open fx market (thus also crushing AUD)
      S3 – take USD and buy up long end of the US yield curve.
      Voila – Aussie and US yield curve control courtesy of the RBA and has the added benefit of crushing the AUD to boot. Genius!

  5. happy valleyMEMBER

    So, Captain Phil has decided to emulate Kamikaze Kuroda of the BOJ and buy every asset in sight – first he’ll corner the bond market, then he can fund the whole retail banking system and finally move on to equities, to keep the housing price bubble pump primed?

  6. happy valleyMEMBER

    ” … given the formidable objective of achieving full employment”

    That’s just a BS front that the RBA is using for their real objective which is to get to NIRP and send house prices to Mars – nothing else matters.

    • Cynical snake

      ” … given the formidable objective of achieving full employment”
      Using interest rates as your only tool.

      Not sure what else you expect them to do?

      • happy valleyMEMBER

        I don’t think low borrowing rates for businesses will get them motivated to borrow to hire people but JobMaker where they can get a handout from the gubmint and get rid of older more expensive staff and jobshare that role with young staff so that the business double dips will likely work.

        • Cynical snake

          Probably not.
          Construction, mate.
          It’s the only jobs the interest rate lever reliably effects, and hence why house prices are targeted to the moon.

  7. turvilleMEMBER

    Well – it’s sure created an environment for asset inflation beyond belief. The RBA are generally reactive, especially in the last decade or so. To imagine that they won’t fuel inflation is quite ludicrous. A for buying various types of bonds might suggest the risk of creating a dysfunctional bond market. Sitting in their “ivory tower” in Martin Place looking over their domain !!!