NAB Touch On Potential Technical Constraints Surrounding RBA QE

NAB note that they "are not expecting any surprises out of the RBA's post meeting statement today. While commentary will likely point to the forecast track being upgraded (new forecasts to be released in the SoMP on Friday) we look to Guy Debelle's speech on Thursday for any insights into the RBA's thinking around unconventional policy measures. Over the past month we have been discussing the potential issues around RBA bond holdings should ACGB purchases under QE2 and QE3 (NAB expects another A$100bn of purchases after QE2 is complete) remain unchanged from QE1. At the end of QE2 we estimate the RBA will hold 30% of ACGBs (or close to 35% of targeted bond lines) and by the end of QE3 the RBA will hold around 35% of ACGBs (or 40% of targeted bonds). Our concern is not how much of the overall bond market the RBA will own. Our concern is more around the technical issues of market functionality should the RBA not tweak its QE program going forward to ensure its holdings of certain bond lines does not get too large (impacting liquidity and futures baskets) while also being conscious of market functioning if weekly QE purchases remain unchanged while weekly bond tenders decline."