RBA Says Ready To Buy Bonds. Action Coming Thursday

They’re throwing the kitchen sink at it – and then some.

Central banks took more dramatic steps on Sunday and Monday (depending on where you’re based) to shore up confidence as markets struggle to price assets and adjust to a new reality that finds large sectors of the world’s most important economies effectively shutting down.

RBNZ slashed rates by 75bps and promised to keep OCR parked at 0.25% for at least the next year, and the Fed unleashed what Jerome Powell probably assumed would be a “shock and awe“-type series of measures, only to see it go down like a lead balloon with equity futures, which, to be fair, were probably going to slide anyway.

At the same time, the RBA said it will announce new measures on Thursday to support the economy and markets where “trading liquidity has deteriorated”, Governor Philip Lowe said Monday, in a statement.

“In response, the Reserve Bank stands ready to purchase Australian government bonds in the secondary market to support the smooth functioning of that market, which is a key pricing benchmark for the Australian financial system”, Lowe went on to say, adding that “the Bank will also be conducting one-month and three-month repo operations in its daily market operations until further notice to provide liquidity to Australian financial markets”.

Australian equities took investors for a wild ride on Friday, swinging from a near 8% decline to a 4% gain. It was the largest intraday swing since the index was established in 2000.

The RBA added a net A$6.91 billion in liquidity Friday, offering A$8.8 billion in its OMO, versus an originally intended A$3.7 billion. With only A$1.925 billion rolling off, the net injection was large.

Just to underscore how truly volatile things are getting (and I documented this as it happened last week, but it bears repeating), on Friday, Australian stocks posted their best day since 2008 after nearly suffering their worst day since 2008 and yet still posted an 11% loss for the week after falling into a bear market just 14 days after closing at a record.

And that’s to say nothing of any volatility or liquidity concerns in local bonds or the Aussie, which is, of course, hostage to commodities, beholden to the Chinese economy and also subject to swing depending on whatever the US dollar happens to be doing at any given moment.

The RBA’s Lowe went on to say Monday that the bank “will conduct longer term repo operations of six-months maturity or longer at least weekly, as long as market conditions warrant”.

3-year Australian yields plunged 16bps on the news.

“It was going to happen, it was just a question of when”, TD’s Prashant Newnahasaid of the RBA’s apparently imminent bond buying. “Central banks are stepping in to ensure the smooth functioning in market liquidity”.

The RBA of course cut earlier this month, and now, with cuts from the BOE (50bps), Norges Bank (50bps), the Fed (a total of 150bps), the BOC (a total of 100bps) and RBNZ (75bps) in the books, you’ve got to think Lowe will be cutting again soon.

After all, those outsized moves make his 25bps from March 3 look wholly inadequate.


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