Coolabah Capital with the note:
Folks are starting to turn their minds to what life looks like after the end of the RBA’s bond purchase program (aka quantitative easing or QE). There’s a fairly robust consensus that Martin Place will look to accelerate its QE3 taper from $4 billion/week currently down to $2 billion/week in February 2022. What few investors appear to understand is that there is a much larger round of long-term, quasi QE4 coming via the banking system, which we currently size at $317 billion (with a range of between $250 billion to $450 billion) starting at the end of June 2021 or $430 billion if we begin at the end of December 2021. That is more bond-buying than all the RBA’s three QE programs combined (ie, $100 billion each for QE1 and QE2, with another $102 billion expected for QE3), which will have profound long-term consequences for asset pricing.
Importantly, the mix of assets banks buy is likely to be very different to what the RBA has acquired: whereas the RBA has split its purchases 80:20 between Commonwealth and State government bonds, the banking system is currently skewed 68:32 in favour of State securities because of the fact they pay a positive spread above the swap rate whereas Commonwealth government bonds don’t.
