AU 3 Year Yields squashed by aggressive RBAThe RBA has a stated yield control curve target of keeping the 3 Year Yield at .10% - the same as its overnight cash rate. However, the market was moving in a direction to push this higher in anticipation of rates being lifted faster than the RBA had previously stated.
Last week the RBA decided to punish those short investors in the three yield by stopping the Commonwealth treasury lending out three-year government bonds, which partially denied short sellers access to these assets to dump on market.This meant the main lender of three-year bonds was the RBA itself - as its single largest owner through its QE program. The RBA then massively increased the cost of borrowing these bonds, making it prohibitively expensive to short-sell them.
As a result, the yield has dropped below 0.10, thanks to the reduction in short selling by investors.
The RBA has said to the market that it will continue its QE program and will expand this even further if required. It's new target is reduce unemployment to below 4% and rates will be held until this goal is achieved.
While the RBA is moderately concerned about 10 Year rates, the 10Y rates, recently dampened by the RBA's last announcement QE program, are continuing to grow.
