PM CFAI - Q22

[BldSwtTrs]

It is said that a sterilized intervention will mop up the excess liquidity and prevent short term interest rate from rising. To me it seems contradictory. If there is less liquidity, and if interest rate result from the interaction of supply and demand of liquidity, then the rates will rise.
Is it assume that short term rates are not set by supply and demand but only by central banking?

 

[clangerh]

You may have caught this already, but it’s just: price and yield are inverse. Longer bonds sold by gov; shorter term funding (dollars, T-bills, repos, whatever) drawn in by gov and taken out of circulation; as you mentioned, supply and demand do their thing; less supply of short-term bonds/paper results in price up, yield down.