Mr Whetton said bonds are priced by individuals at banks and institutions calling each other, not on an open exchange like the stock market, and the prices were just jumping around too much last week for deals to be struck last week
“(The RBA) is trying to ensure that yields are more reflective of reality,″ Mr Whetton said.
“You couldn’t buy or sell a (fixed interest) security because there was no buyers or sellers. No one was willing to take a price because it moved so fast.″
“The RBA coming in and buying bonds is a way of them standing in the market to ensure orderly pricing,” he explained.
The next big point of interest will be tomorrow’s board meeting comments on the bond market and specifically whether the RBA will maintain its three-year bond yield curve control (YCC), which was expected to be removed by August this year.
Meanwhile, UBS economist George Tharenou said the equity market was currently more concerned about fiscal stimulus causing higher inflation and the potential for monetary policy tightening.
In a note to clients today, he compared this to March 2020, when “uncertainty of COVID led markets to question the ability of Governments to fund the required fiscal support”.
“Nonetheless, we think the RBA will feel compelled to act with further support,″ Mr Tharenou wrote.
“Markets are strongly challenging the RBA’s forward guidance of rates on hold ‘until at least 2024’, and speculating the ongoing stronger data could force the RBA to immediately remove its YCC cap on the 3-year bond yield (which targets the Apr-24 line).”
Read More: Markets Live, Monday 1 March, 2021