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National debt management

A

act67812

Keen member
Hi

I'm not sure I fully understand the concept of national debt management policy. The description given in the core reading is:

National debt management policy – the manipulation of the outstanding stock of government debt instruments held by the domestic private sector, in order to influence the level and structure of interest rates or the availability of liquid reserve assets to the banking sector.
Note that national debt management policy is closely inter-linked with monetary and fiscal policy.

Is the idea that the government can buy back (issue) government bonds to manipulate interest rates up (down). Is the logic behind this that if the government issues bonds this will lead to increased supply -> increase marketability and liquidity -> lower risk -> lower rates?

Thanks in advance.
 
Buying back bonds is quite unusual. It has happened but it is unusual. Its more about issuing bonds in the right areas of the yield curve so that the government can benefit from lower yields at a specific term. It also helps liquidity if the government issue more of a bond, making the outstanding issue size bigger.
 
Thanks. I understand the first part of your response. I guess thinking about the current UK economy this would mean the Gov issuing long dated bonds over short as they have a lower yield and higher price.

I don't fully understand the second part. Are you saying that by issuing more bonds this increases marketability of the gov bond market due to greater supply, making bonds easier to buy and sell, thereby increasing liquidity of the bonds?
 
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