The article discusses how central banks in small open economies can intervene in bond markets to stabilize exchange rates and reduce volatility caused by capital flows. These interventions can help address the issue of excessive exchange rate fluctuations but come with costs, as foreign investors can profit from them. The optimal intervention policy involves stabilizing the exchange rate, maintaining smooth bond spreads, and providing forward guidance even after the shock has passed. Central banks need to be credible in their interventions to be effective. The study also shows that widespread interventions can lead to countries accumulating too many reserves, which can lower global interest rates and harm overall welfare.