What Type Of Assets Do Central Banks Buy?

Usually central banks will buy government bonds, but recent market turmoil has seen banks buy a wide range of assets, both good and bad.
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The Assets Central Banks Buy

Just a quick question here from Abu asking us when a central bank announces that they will buy bonds, how do we know what bonds they plan to buy?

So Abu, whenever a central bank announces that they plan to buy bonds, that will normally be accompanied by a statement from the bank, that will tell us exactly what type of bonds they plan to buy and how much.

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Looking at a very, very recent example, we had the BOC yesterday coming out. And in the statement the press released, they let us know that apart from the 5 million that they plan to buy, 5 billion in plans implant government bonds purchases, they also intend to buy provincial bonds at the value of 50 billion and also attempting to buy corporate bonds at 10 billion.

So there’s just a quick example of the Bank of Canada yesterday. We’ll also add an example here from the March meeting from the Federal Reserve, where they started with the new quantitative easing program saying that they will buy 500 billion worth of Treasury securities and that is government bonds, as well as mortgage backed securities.

Now, in a more recent announcement, they have said that this is no longer limited. It is now an unlimited QE program intending to buy the same two securities, which is treasuries and mortgage backed securities, also have the example here from the RBA, where they said that they are planning to purchase Australian government securities now that again, government bonds. Another example is the BOJ.

They haven’t only bought government bonds, but they’ve also bought ETFs. And in a very controversial move, that has also been one of the more recent moves from the Federal Reserve where you can see the Federal Reserve is now open to buy corporate bonds as well as eligible corporate bond portfolios in the form of ETFs or exchange traded funds, so that’s just a few examples of where we can see how these, what type of bonds they plan to buy.

So whenever we do get an announcement, that later the Fed is planning to buy something or any type of central bank that will normally let us know exactly what type of bonds that is and how much of those bonds they plan to buy.

 

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