The main reason why central banks are generally not allowed to buy government debt in the primary market is that the central bank is supposed to buy assets at market prices (to protect its ability to
I have not been involved in the US treasury market for a few years, but it does strike me as strange that the Fed would buy such a recently issued bond. Normally, the most recently issued (
Yves Smith incorrectly relates the issue to whether the Fed is adding or draining liquidity. In fact, the quantity of liquidity that the Fed adds (or withdraws) is determined by the monetary value of bonds it buys (or sells). In this case, the issue is about how the Fed adds the liquidity, and the impact of its operations on relative prices in the treasury market.