3 ms·
In Europe, the government does buy its own bonds. Via the central bank. They print the money. Hold it for a few days. Then buy government bonds with it. Read w
by ArtTimeInvestor 6y ago
In Europe, the government does buy its own bonds. Via the central bank. They print the money. Hold it for a few days. Then buy government bonds with it.
Read what the european central bank (ECB) writes about it:
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1956.en.pdf
https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en....
Search for "government bonds" in these papers.
- lottin 6y agoThe central bank buys bonds in the secondary market, and any effect on the risk premium is only indirect (investors perceive the bonds as being safer). This is completely different from the government "dictating the risk premium". The risk premium is the spread deemed necessary by the market to compensate for credit risk, and as such it can't be dictated by anyone.
- cinquemb 6y agoThen there is also the downstream effects of buying these "safe" bonds on the secondary market: strip mining the "highest" quality collateral out of markets, and making markets ever more reliant upon fewer on tradeable cusips…