Australian (ASX) Stock Market Forum

Australia’s $911,000,000,000 Debt

Kind of explains what happens here

Which leads to another question.
The rba lost $37billion eofy 21-22.
Obviously the markets knew this a lot earlier and in hindsight was pretty obvious.

So is the flow on affect that the rba jacks rates to make its money back. Along with reigning in the money it pumped.

I haven't checked previous years of rba losses due to pumping. But is it a clearish sign to short if the rba pumps so hard it takes these kinds of losses?

Can we trade off it?
 
I dunno what claims others made and don't have anything to say about them, again, all of my posts have been rebutting the idea that government spending is constrained by taxation or debt issuance.

If the Treasury went out and spent without any sterilisation, there would be more deposits in the economy relative to an unchanged amount of real economic goods/services. One possible outcome is benign: those deposits find something productive or inert to do. The other outcome is inflationary: those deposits bid up good/services.
Maybe go back and read the posts I was responding to.

I never said government spending was constrained by debt issuance, I said if the government spends more than it earns though taxation and other incomes it’s debt rises, which is true, and it can’t just erase this debt, the debt is owned by the RBA, which is not controlled by the government.
 
To clarify around money printing. I heard it costs about 30 cents to make the notes and they profit from the difference
Is that true?
They, meaning the RBA, kinda off. They print the Australian currency (and 19 other countries), and they stack this currency in their vaults, but they don’t just spend it, it is loaned out to the government and other commercial banks.
 
Which leads to another question.
The rba lost $37billion eofy 21-22.
Obviously the markets knew this a lot earlier and in hindsight was pretty obvious.

So is the flow on affect that the rba jacks rates to make its money back. Along with reigning in the money it pumped.

I haven't checked previous years of rba losses due to pumping. But is it a clearish sign to short if the rba pumps so hard it takes these kinds of losses?

Can we trade off it?
It won’t actually lose money on those bonds, it’s just a short term accounting loss because the bond price has dropped, but they will hold the bonds till maturity and be paid the full face value.

Picture a $100 10 year bond that pays 1% interest, if interest rates rise to 5% that $100 bond that only pays 1% will drop in value maybe below $90. So they will report a loss for a little while, because they paid $100 for something that’s now only worth $90, but that difference is only temporary.

As that bond gets closer to its maturity it will move back to being worth $100 again.

For example a bond that matures in 7days will be worth it face value, because 7 days of interest is negligible, but with 7 years till maturity interest rate difference make a bigger difference.
 
Realistically rba isn't there to make a profit.

So one of the reasons they bought the bonds was to hold rates down during the covid troubles?

I suppose that was the indicator.
 
It won’t actually lose money on those bonds, it’s just a short term accounting loss because the bond price has dropped, but they will hold the bonds till maturity and be paid the full face value.
not quite accurate , as long as the RBA can hold those bonds to maturity ( or a different redemption event ) then you are correct , however if forced ( or chooses ) to sell at the current market prices , then capital losses can occur .

just like for SVB since nobody has suggested SVB leveraged the bond holdings or used them as collateral for other financial instruments , now sure in hindsight SVB might have been wiser to choose short duration Treasury bonds and bills ., and kept on rolling them over as needed , ( maybe they bought their bonds at a discount to face value , so weren't completely naive , just 'unlucky ' )

but here we are SVB had a major draw-down event forcing asset sales ( at a capital loss )

now in normal times the RBA being forced into a forced liquidation ( full or partial) of assets would be unimaginable , but these are unusual times , and testing uncharted territory ( the RBA might be forced to defend the Aussie dollar , for example ala Japan not so long back )
 
not quite accurate , as long as the RBA can hold those bonds to maturity ( or a different redemption event ) then you are correct , however if forced ( or chooses ) to sell at the current market prices , then capital losses can occur .

just like for SVB since nobody has suggested SVB leveraged the bond holdings or used them as collateral for other financial instruments , now sure in hindsight SVB might have been wiser to choose short duration Treasury bonds and bills ., and kept on rolling them over as needed , ( maybe they bought their bonds at a discount to face value , so weren't completely naive , just 'unlucky ' )

but here we are SVB had a major draw-down event forcing asset sales ( at a capital loss )

now in normal times the RBA being forced into a forced liquidation ( full or partial) of assets would be unimaginable , but these are unusual times , and testing uncharted territory ( the RBA might be forced to defend the Aussie dollar , for example ala Japan not so long back )
Given that the RBA can literally print money, there is no reason they could ever become a forced seller of the bonds.

I agree you can lose money on bonds by being forced to sell them before maturity if you are an individual or institution that requires the money and can’t wait, however the Reserve Bank is a different animal, there is no way they could ever become a forced seller.
 
Realistically rba isn't there to make a profit.

So one of the reasons they bought the bonds was to hold rates down during the covid troubles?

I suppose that was the indicator.
Correct, also if they cared about bringing these bonds back to face value they could just drop interest rates and the bonds would rocket up in value again.

The reason the bonds dropped in value is because market interest rates changed, given the RBA controls interest rates, they also control the price of the bonds sitting in their warehouse.

But as you said the priority for them is carrying out their work and achieving their goals, provided they earn enough to self fund their operations they will be fine, any excess just gets donated to the government anyway.
 
Correct, also if they cared about bringing these bonds back to face value they could just drop interest rates and the bonds would rocket up in value again.

The reason the bonds dropped in value is because market interest rates changed, given the RBA controls interest rates, they also control the price of the bonds sitting in their warehouse.

But as you said the priority for them is carrying out their work and achieving their goals, provided they earn enough to self fund their operations they will be fine, any excess just gets donated to the government anyway.

VC: "tha RBA controls the price of bonds"
The bond market:

1681903322135.png
 
Central Banks have never and will never be able to do what you say, control the long end of the curve or even sometimes the short end of the curve.

View attachment 155983
I am not saying they have 100% control over bond prices.

But, you should agree that.

1. In general lower interest rates would cause existing bond prices to rise.

2. The RBA has quite a lot of control over interest rates.

Yes there are other factors, but prevailing interest rates is one of the main drivers of bond prices.
 
I am not saying they have 100% control over bond prices.

But, you should agree that.

1. In general lower interest rates would cause existing bond prices to rise.

2. The RBA has quite a lot of control over interest rates.

Yes there are other factors, but prevailing interest rates is one of the main drivers of bond prices.

If you look carefully at this chart for 5 minutes do you still believe any of that?
1681910371735.png
 
If you look carefully at this chart for 5 minutes do you still believe any of that?
View attachment 155990
Yes I do, the RBA “Loss” we are discussing was caused by the quoted market value of the older lower interest rate bonds falling in value.

The a large part of reason that the market value of the older bonds fell is due to the prevailing interest rates rising.

This is discounted cashflow 101, it’s not rocket surgery, if they dropped interest rates back to where they were 6 months ago the bond prices would recover.
 
I am not saying they have 100% control over bond prices.

But, you should agree that.

1. In general lower interest rates would cause existing bond prices to rise.

2. The RBA has quite a lot of control over interest rates.

Yes there are other factors, but prevailing interest rates is one of the main drivers of bond prices.
well in an ideal world the RBA should not be buying Treasury bonds ,( foreign and local ) investors should be buying the lion's share , either at auction or on market , however there are some hints the world ( or Australia ) is having some glitches
 
Yes I do, the RBA “Loss” we are discussing was caused by the quoted market value of the older lower interest rate bonds falling in value.

The a large part of reason that the market value of the older bonds fell is due to the prevailing interest rates rising.

This is discounted cashflow 101, it’s not rocket surgery, if they dropped interest rates back to where they were 6 months ago the bond prices would recover.

You have it backwards and any cursory examination of market rates, even at the short end of the curve, across history, but even including as recently as 2021 when market rates forced the RBA to abandon any pretense that they can exert control over something as close to benchmark as the 3Y rate, would show how incorrect this is.

The market sets the price based on growth/inflation/liquidity expectations. The RBA and other Central Banks play in their little pool and follow the market rate when forced to. It has always been thus.

If what you said is true, none of the yield curves would look anything like they do today, including the literally unprecedented yield curve inversion in AU 10s/1s.
 
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