The Reserve Bank's bond-buying programme has become a shadow of its former self.
The programme, also known as quantitative easing, peaked in early April at $1.8 billion a week when the extent of the Covid-19 pandemic was starting to be understood, then dropped back to $700 million a week in August.
As bond issuance to fund the Government's response to Covid-19 lifted, so too did the central bank's bond buying.
It jumped back up to $1.4 billion a week in mid-September but it's been dropping ever since.
In October the pace of weekly bond buying fell back to $800m. This week, the bank plans to buy $650m.
Westpac expects that the central bank will gradually taper the pace of Government bond purchases to around $500m by the end of the year.
Last December, the half-year economic and fiscal update showed the Government's finances to be less dire than forecast, which meant a reduction in its forecast borrowing requirement.
The Treasury then put the 2020/21 bond programme at $45 billion, a decrease of $5 billion.
The forecast programmes for 2021/22, 2022/23 and 2023/24 have also been decreased by $5 billion in each year, to $30 billion.
Westpac senior markets strategist Imre Speizer said the Reserve Bank's reduced bond buying can be put down to lower-than-forecast bond issuance.
The Reserve Bank's deal with the Government caps its bond-buying programme at 60 per cent of the market.
As it stands, the central bank has about 35 per cent of the market, and Speizer says that still could increase to 40 per cent.
But he said the Reserve Bank would mindful of its impact on the functioning of the bond market.
"Clearly, if it buys too many then it leaves less in the private owners' hands and less for the market to trade," he said.
"If you leave too few bonds in the marketplace then the market could actually become dysfunctional."
The Reserve Bank's efforts to keep a lid on interest rates has largely worked in the short end.
However, in the long end, it has not stopped New Zealand bond yields responding in kind to offshore bond yields, which have steadily been rising as financial markets start to price in a "reflation" play in line with an improved global outlook.
The New Zealand 10-year Government bond yields last traded at 1.08 per cent, up from around 0.5 per cent last September, and in line with a bump in US treasury yields.
However short-dated securities have stuck close to Reserve Bank's official cash rate of 0.25 per cent, which the market now expects to be as low as it goes in the current cycle.
Hamish Pepper, fixed income strategist at Harbour Asset Management, said the market had taken the bank's reduced bond buying in its stride, although he noted the bank is buying more than is being issued.
Economists have noted a string of stronger-than-expected economic data and last week's 1.4 per cent rise in the consumer price index for 2020, which was higher than market expectations.
"Obviously, we are in a much better place than the Reserve Bank thought we would be," Pepper said.
"There is a little bit of tension forming between that dynamic and the fact that they are still buying in a relatively aggressive way," he said.
Come February 24, Pepper said there may be some further reduction in the pace of purchases to reflect the better economic environment.
Looking back on April last year, when the extent of the Covid-19 threat was becoming clearer, Pepper said much of the initial burst of bond buying was about restoring market function at a time of extreme disorder.
"We are all through that now, so there has been tapering but it's generally been consistent with lower supply."