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The 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
by lottin 6y ago
The 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…