NeilW wrote:dealtn wrote:So yet again. Tell me when that will happen?
It's happening now. That's what QE is doing - pushing down the yield curve in certain places in pursuit of the Bank's monetary policy.Explain the mechanism (as you so often make a demand on others) where in the real world this can or will happen
That's what QE is doing. They pick certain maturities and purchase them to reduce the supply of that Gilt forcing the price up and the yield down to move the yield curve at that point where they want it. Then they lend those Gilts to the DMO who can fine tune the position in the Gilt repo market ahead of the auctions.
The net result of active cash management is that DMO can actually end up with the interest cost less than if they have just run a Ways and Means balance.Positive net interest after cost of funds has been recorded by virtue of funding the Exchequer’s daily cash needs in the wholesale money markets at rates that have been on average below the DMA’s internal cost of funds (Bank Rate) and from investing surpluses at market rates that were on average above this.
DMO Annual Review 2020, pp p37 https://www.dmo.gov.uk/media/17019/gar1920.pdf
Can I ask you something else, since you've run a GEMM? Where does the GEMM get their cash balances from to buy the Gilts in the auction? And if they borrow from a bank what do they use as collateral?
Wasn't something similar said around time of ERM demise?
Chris