Finansavisen | "The gold price will fly to new heights"

To hold long-term interest rates down, the US Treasury has been buying back its own long-dated government bonds – with money already in circulation. Speaking to Finansavisen, Eric Strand, lead fund manager at AuAg Funds, sets out what changes if the central banks take over that task: quantitative easing is paid for with newly created central bank reserves, so the monetary base grows in step with every bond bought.
He considers that increasingly likely, and a move by the Federal Reserve more likely to come before one from the European Central Bank. The same pressure runs through most of the Western world and Japan, and long-term rates have risen furthest where public finances are weakest – France, Japan, the US and the UK.

Valuable insights

• Buybacks by a finance ministry and quantitative easing by a central bank both mean buying government bonds; only the second is paid for with money that did not exist before.
• Around 200 billion dollars of ten-year US Treasuries change hands each day, which is the measure against which the Treasury's own buybacks have been judged too small.