The Treasury on the Phone
Two Institutions, One Balance Sheet
The central bank buys long bonds to lower long rates. The debt office issues long bonds to lock in funding. Both are right, and they are pulling against each other.
12 min150 XP available4 challenges
A purchase programme does not retire debt. It takes a long bond out of private hands and puts overnight reserves in — reserves on which the central bank pays the policy rate, and which the state as a whole must therefore refinance every night. Consolidate the two balance sheets and the question is not how much debt exists but how long it is.
Effective maturity, consolidated
4.7
Reserves refinance overnight
- Years of maturity removed
- 3.3
What the programme took out
Years — what the debt office reports
Purchases skew long by design
Take the consolidated maturity below 4 years without changing what the debt office issued
- Try €0 — not yet
- Take the consolidated maturity below 4 years without changing what the debt office issued — not yet
Answer to continue.