Fixed interest rates

Fixed interest rates may have reached rock bottom, say economists

PHOTO: Fixed interest rates may not be able to fall much lower, according to economists, because the Reserve Bank has already bought up a significant number of 3-year government bonds.(ABC News: Sarah Motherwell)

The metaphorical ‘shelf’ for three-year government bonds is almost empty, according to the National Australia Bank (NAB).

In its latest monetary policy update, the NAB said the Reserve Bank of Australia (RBA) had been buying them up at quite the rate.

“We note that at the current rate [of Reserve Bank bond buying]… the RBA will own nearly all April 2024 government bonds by mid-2021.”

In other words, the Reserve Bank has almost bought all available three-year government bonds.

The Reserve Bank has been busy buying up Commonwealth Government securities over the past few months.

In its November policy update, it announced it was ramping up its bond-buying program to full-blown quantitative easing (QE).

“The purchases of $100 billion will take place over a period of approximately six months, with weekly purchases of around $5 billion,” the update stated.

“The focus of purchases will be bonds with residual maturity of around 5 to 10 years but may also include bonds outside of this range, depending on market conditions.”

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