Blog Post

An update: Sovereign bond holdings in the euro area – the impact of QE

Since the ECB’s announcement of its QE programme in January 2015, national central banks have been buying government and national agency bonds. In this post we look at the effect of QE on sectoral holdings of government bonds, based on our recently updated dataset.

By: and Date: November 22, 2016 Topic: European Macroeconomics & Governance

In this blog, we provide an update of our calculations first published in May this year , which allows us to gauge the impact of QE on sovereign bond holdings in the euro area.

By the end of October 2016, the ECB has bought 1148 billion euros of bonds under its public sector purchase program (PSPP), of which 129 billion were supranational bonds and 1019 billion were national government and agency bonds. Purchases of asset-backed securities reached 21 billion euros by the end of October, while holdings under the third covered bond purchase programme (CBPP3) amounted to 198 billion euros (see here for breakdowns). Starting in June 2016, the ECB also added a corporate sector purchase programme (CSPP), which now stands at 38 billion.

As previously discussed, the implementation of this 85 billion euros of purchases is split between the ECB and the national central banks. This is reflected in Figure 1, which shows an increasing trend in central banks’ sovereign bond holdings since the start of the PSPP.

More interestingly, as a percent of the total outstanding debt, this increase has been offset by decreases in sovereign holdings of other institutional sectors. Table 1 shows the percentage point change of sovereign debt holdings between end-2015 and mid-2016. Our updated figures show that the central bank purchases have been offset by decreases in resident banks’ holdings, much to the benefit of a decreased sovereign-bond dependency. Such changes played a minor role in the other countries. In France and Germany, most of the increase in central bank holdings was offset by a decrease in non-resident holdings, which includes all holdings which are not domestic. In Italy, other residents such as households and corporates are decreasing their sovereign bond holdings, a trend which cannot be observed in any other country.

In conclusion, our most recent data update confirms the trend already highlighted in our post from May this year. It appears that in most countries the ECB’s purchases have not yet helped reverse the marked increase in banks’ holdings of domestic government debt which happened during the crisis. However, with the updated figures, we can see that Spain is a positive exception. December might bring a change in US monetary policy, with possible changes in investors’ preferences around the world, so we will keep monitoring this closely.


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