The Reserve Bank is buying government bonds for corona relief
It's a massive step.
The central bank will start buying government bonds as part of additional emergency policy measures aimed at easing the liquidity crunch triggered by Covid-19.
Basically what they're doing is providing cash into the market. What we've seen over the last few months is a complete and utter cash squeeze. When markets sell off you have investors having a look at what's happening in the market and what they do is they take their funds out of investments and keep it as cash... What this causes, is you know the funds normally have a certain amount of cash on hand to make sure they can pay these margin calls and they budget for withdrawals- but when withdrawals happen on a mass basis, complete panic ensures. That's pretty much what happened on the bond markets. We all have cash invested - if you're young, probably equities. If you're old, you're probably more invested in cash or bond markets. And if the bond markets are taking a knock - its' all good and well if you have not eroded your capital but the minute they wipe out the gains that you've made this year, it affects your income When people panic they cash out their policies. The more people cash in their things the more bonds we have to sell to give you cash.Michelle Wohlberg - RMB
It's a very interesting day for markets. We saw complete disfunction entering the bond market in the last couple of days. So it really was necessary.Peter Attard Montalto, Director and head of Capital Markets Research - Intellidex
But we 're going to have to think through after the crisis, questions about how you unwind this; how you prevent unnecessary incentives...Peter Attard Montalto – Intellidex
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This article first appeared on 702 : The Reserve Bank is buying government bonds for corona relief
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