Research Discussion Paper – RDP 2022-02 The Yield and Market Function Effects of the Reserve Bank of Australia's Bond Purchases


We examine the effect on government bond yields of three Reserve Bank of Australia policy measures implemented following the onset of the COVID-19 pandemic. We also assess the impact of the three measures on government bond market functioning. The three measures were: purchases to support government bond market function over early 2020; the yield target on 3-year Australian government bonds; and the bond purchase program to lower longer-term yields from late 2020 until early 2022. For purchases to support market function, we find that the announcement lowered short-dated Australian Government Securities (AGS) yields, but did not lower longer-dated AGS yields. We also find that such purchases led to lower yields as and when they were implemented, and that they supported market function by lowering bid-offer spreads. For the yield target, we find a substantial announcement effect and moderate implementation effects on yields. Conversely, the yield target appears to have detrimentally affected some aspects of government bond market function. For the bond purchase program, we find an announcement effect of around 30 basis points for longer-term AGS yields, while any implementation effects were small and temporary.