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Quantitative Finance · Glossary

What is Central-bank backstop?

Definition 7.4 Markets II: Rates, FX and Credit · Chapter 7 — European and Japanese Government Bonds

A central-bank backstop is a commitment, or a standing instrument, by which a central bank will buy a government’s bonds in a market dysfunction, so that prices reflect fundamentals rather than a run. Its conditions decide what it can be used for: the conditions for activating it, the size, and whether it is announced as unlimited.

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