At the beginning of May 2020, the Central Bank of Iceland began buying Treasury bonds in the secondary market, in accordance with the 23 March 2020 statement by the Monetary Policy Committee. The objective of the purchases is to ensure monetary policy transmission throughout the yield curve, so that the more accommodative monetary stance is transmitted normally to households and businesses. In this context, particular consideration is given to the market effects that the foreseeable increase in Treasury bond supply will have on monetary policy transmission.
The aim is to keep the scale of the purchases consistent with normal market functioning. The Bank will set amounts, frequency, and execution of the purchases so as to ensure the efficacy of the measures.
According to the above-mentioned Monetary Policy Committee decision, the Bank may purchase Treasury bonds for up to 150 b.kr. The Bank announces in advance the maximum amount it intends to buy each quarter. For Q2, it was announced that the Bank’s total purchases could range up to 20 b.kr. market value.* The Bank’s total purchases for the period came to 892.3 m.kr. market value, as follows: RB21, 203.5 m.kr.; and RB22, 688.8 m.kr.
For Q3/2020, the Bank’s purchases could total as much as 20 b.kr. market value, and they could extend to all nominal benchmark Treasury bonds issued in Icelandic krónur and maturing in 2021, 2022, 2025, 2028, and 2031, as well as new nominal benchmark issues that may be added on.
The Central Bank will purchase the bonds by submitting bids to the Nasdaq Iceland trading system. It is also possible that the Bank will announce purchases by auction.
Any auctions that are held will be announced with one day’s advance notice. The announcement will specify the series and the estimated maximum amount to be purchased. Information on the general terms and conditions for auctions that may be held in connection with the Central Bank’s purchase of Treasury bonds in the secondary market can be found here.
Further information can be obtained from Sturla Pálsson, Director of the Markets Department of the Central Bank, at tel +354 569-9600.
* The sale price or market value refers to the clean price plus accrued indexation; i.e., with indexation but without accrued interest.
30 June 2020