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> - Let's say the UK treasure issues bonds. 10, 20, and 30-year bonds at 3%, which are then purchased by pensions. - Risk of recession grows, and the price of b
by badpun 4y ago
> - Let's say the UK treasure issues bonds. 10, 20, and 30-year bonds at 3%, which are then purchased by pensions. - Risk of recession grows, and the price of bonds fall and yields rise because risks go up. - The Bank of England buys bonds to prop up bond prices.
> - Since the UK treasury has already issued the bonds at a fixed rate, why do they care what the secondary aftermarket price of their bonds is?
Most government are constantly issuing new bonds (to roll over existing debt if nothing else), so the secondary market of their own bonds is a direct competition to the new bonds they want to issue.
- saurik 4y agoBut if they are buying their bonds to prop up the price of... selling bonds? that seems like it wouldn't really accomplish anything, as they would probably just be losing money on the spread of those two simultaneous actions.
- refurb 4y agoMy understanding (from how the fed does it) is the buying of bonds influences the rest of the lending market since sovereign bonds are the “risk free benchmark”. They don’t care about the bonds the Lu are buying, they care about the market price it sets.
- abm53 4y agoThe government are not buying bonds to prop up the price. The Bank of England are (and the distinction is very important to that market).
- colinmhayes 4y agoTreasury bonds set the lower limit for interest rates in the currency. Why would anyone write a 30 year mortgage at 3% when they can buy a bond backed by the government for 5%? The central bank wants people to be able to get loans so they prop up the price of the bond.