VIEW: ANZ: What Now For The LSAP Portfolio?

ANZ note that "bond purchases ceased in July, but the bonds purchased have maturity dates going out as far as 2041. While the time-frames are very long, this portfolio will need to be managed, and how that is done is important to financial markets."

• "In August, the MPC directed staff to come up with an operational strategy to manage the LSAP portfolio. We expect the next step to be the publication of a broad-based "principles" document. We expect this to outline the order in which unconventional policy will be unwound, and how that will occur. The key issue for financial markets will be whether the RBNZ intends to sell down its bonds, let them mature, or partially reinvest the proceeds. For a variety of reasons, the risks look skewed towards combinations of the latter, and that's likely to place less stress on the bond market going forward than a sell-down."
• "Unwinding the LSAP portfolio will have to be done in a flexible and pragmatic manner, with decisions dependent on how the economy and bond markets evolve. These are unknowns at this point, and as such we are not expecting any firm commitments until late 2022 or early 2023. We don't think the LSAP portfolio will be a permanent feature of the markets landscape, but it could be with us for some time, with the global experience suggesting that getting out of QE gracefully is a lot harder than getting in. Unwinding QE (known as Quantitative Tightening - or colloquially, "QT") tightens financial conditions, all else equal, and may thereby also reduce how high the OCR needs to go."