The RBA has maintained a 0.1 per cent yield target on the Commonwealth debt, but market traders have recently repeatedly pushed the return on those bonds above that benchmark
Traders have forced the Reserve Bank into submission, with the Reserve Bank of Australia (RBA) declining to enter the market to buy April 2024 federal government bonds to defend its interest rate target.
The Reserve Bank has maintained a 0.1 per cent yield target on the three-year Commonwealth debt that matures in April 2024, but market traders have recently repeatedly pushed the return on those bonds substantially above that benchmark.
After rising steadily over the past week, the yield on those bonds was sitting around 0.25 per cent, before more than doubling yesterday to sit above 0.5 per cent, or more than five times the Reserve Bank’s target level.
That move came on the back of stronger than expected September quarter inflation figures on Wednesday that were seen by traders as increasing the chances of an official interest rate rise before 2024, which is when the RBA has been forecasting the first move up.
Today, the RBA had an opportunity to step into the market to buy April 2024 Australian government bonds.
Its purchases would have pushed the price of those bonds up, therefore pushing the yield, or return, on them down closer to its 0.1 per cent target level.
However, the RBA did not bid for any of those bonds today, perhaps deciding that the market moves betting on rising rates were too strong to successfully fight against.
Since the RBA passed up the opportunity to buy today, the yield on those bonds briefly jumped to 0.823 per cent, or more than eight times the RBA’s target level, before easing back slightly to 0.738 per cent by 4:20pm Australian Eastern Daylight Time (AEDT).