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MONETARY POLICIES

What has the ECB been Buying?

ECB Bond Buying Program, Eurobons, ECB monetary policy, ECB bond purchase, sovereign bonds

The ECB is a month into what it has signaled will be at least an eighteen month asset purchase program. It had begun buying asset-backed securities and covered bonds earlier, but starting last month began buying sovereign and supranational bonds.

As of April 3, the ECB settled 4.89 bln euros of ABS purchases, 65.67 bln euros of covered bond purchases and 52.52 bln euros of public bonds (sovereigns and supranational bonds).

Even though the public bond purchases were not initiated until the second week of March, the ECB aggressively pursued it objective and settled roughly 60 bln euros of assets last month. This was composed of 5.68 bln euros of supranational bonds and 41.68 bln of government bonds and about 2.6 bln euros covered bonds/ABS.

The average maturity of the government bonds the ECB has purchased is about 8.5 years. There is some variance. Lithuania, Latvia, and Slovenia purchased with a weighted average of less than 6.5 years before maturity. The Netherlands average is about 6.75 years. Spain and Portugal are on the other side, with average maturities about 11.6 years and 11.0 years respectively.

The sovereign bond purchases are weighted by the capital key, which is their contribution to the ECB and is roughly proportionate with the size of their economy. As of March 31, 11.06 bln of German bunds were purchased. The weighted average maturity is 8.1 years. France is second with 8.75 bln of bonds purchased and an average maturity of 8.22 years. Italy, the third largest, bought 7.6 bln euros of government bonds. The average maturity was a little more than 9 years.

Around 5% of the bonds the Eurosystem will buy have been bought. Therefore, one should not draw hard and fast conclusions about the maturity structure. However European central banks are most interested in driving down long-term interest rates. The core countries especially appear to be minimizing the purchases securities bearing negative interest rates.

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