Blog Post

An update: sovereign bond holdings in the euro area – the impact of quantitative easing

Since the European Central Bank’s announcement in January 2015 of its quantitative easing programme, 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, updating calculations that we published initially in May 2016.

By: and Date: October 10, 2017 Topic: European Macroeconomics & Governance

Download the sovereign bond holdings dataset

This post updates a calculation published in May 2016

By the end of September 2017, the European System of Central Banks had purchased €1,784 billion of bonds under its public sector purchase programme (PSPP), of which €193 billion (11 percent) was supranational bonds and €1592 billion (the remaining 89percent) was national government and agency bonds. Purchases of asset-backed securities reached €24 billion by the end of February, while holdings under the third covered bond purchase programme (CBPP3) amounted to €237 billion (see here for breakdowns). Starting in June 2016, the ECB also added a corporate sector purchase programme (CSPP), which now stands at €116 billion.

Figure 1 shows the deceleration in monthly asset purchases since April 2017, which is due to the reduction in the ECB’s target from €80 billion to €60 billion. The ECB has communicated to keep this target at least until December of this year.

The monthly purchases are split between the ECB and the national central banks (NCBs). The NCBs’ balance sheets have increased almost fivefold since the start of the expanded asset purchase programme (APP), as shown by Figure 2.

The data also allows us to analyse how central bank purchases are being offset by other institutional sectors in the countries in question. This is of interest because banks’ holdings of domestic government debt surged during the crisis, leaving national banking systems more vulnerable to domestic shocks. This is especially true for Spain, Italy and France, where the banking sector holdings of sovereign bonds approximately doubled at the peak of financial turmoil compared to pre-crisis levels. This development is even more extreme for Portuguese banks, which owned only about 4 percent of sovereign bonds in 2007, but 24 percent in 2012.

Table 1 shows the percentage point change in institutional holdings of domestic sovereign bonds between Q4 2014 and Q1 2017. Our updated figures highlight that the central bank purchases in Spain have been offset mainly by decreases in resident banks’ holdings, leading to a decreased sovereign-bond dependency. Starting from more than 30 percent in Q4 2014, Spain managed to reduce the share of sovereign bonds to about 20 percent of total public debt.

For the other countries in Table 1, it seems that QE operations reduced the holdings of resident banks only to a limited extent (about 2 percent). In Portugal and the Netherlands, for example, bond purchases by national central banks have been almost completely offset by a decrease in non-resident holdings. This is in contrast to Italy where other residents, such as households and companies, reduced their sovereign bond exposure most.

With QE in operation at least until the end of 2017, our conclusion from this update is very much in line with our previous blog post: we see that sovereign bonds purchased by national central banks were sold mainly by institutional sectors other than resident banks, with the exception of Spain.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

View comments
Read article More on this topic More by this author

Blog Post

Building a stable european deposit insurance scheme

Deposit insurance, like any insurance scheme, raises moral hazard concerns. Such concerns arising from European deposit insurance can be alleviated through a country-specific component in the risk-based premium for deposit insurance and limits on sovereign bond exposures on bank balance sheets. This column argues, however, that proposals to maintain national compartments in a new European Deposit Insurance Scheme are self-defeating, as such compartments can be destabilising in times of crisis.

By: Dirk Schoenmaker Topic: Finance & Financial Regulation Date: April 19, 2018
Read about event More on this topic

Upcoming Event

Apr
25
12:30

Central banking in turbulent times

This event will look at fundamental questions about the central banking systems and how the Great Recession might have prompted a reassessment of the old central banking model.

Speakers: Maria Demertzis, Paul De Grauwe, Marianne Nessén and Francesco Papadia Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Blog Post

The debate on euro-area reform

A paper jointly written by 14 French and German economists set off a debate about the reform of euro-area macroeconomic governance. We review economists’ opinions about it.

By: Silvia Merler Topic: Finance & Financial Regulation Date: April 16, 2018
Read article More on this topic More by this author

Opinion

The Lesser Evil for the Eurozone

For three decades, the consensus within the European Commission and the European Central Bank on the need for market reforms and sound public finances has been strong enough to overcome opposition in small countries and outlast procrastination in large ones. Today, however, the Eurozone playing field has become a battleground.

By: Jean Pisani-Ferry Topic: Finance & Financial Regulation Date: April 4, 2018
Read article More on this topic

Blog Post

Do wide-reaching reform programmes foster growth?

With growth gathering momentum in the eurozone, some have claimed this is the proof that structural reforms implemented during the crisis are working, re-opening the long-standing debate on the extent to which reforms contribute to fostering long-term growth. This column employs a novel empirical approach – a modified version of the Synthetic Control Method – to estimate the impact of large reform waves implemented in the past 40 years worldwide.

By: Alessio Terzi and Pasquale Marco Marrazzo Topic: European Macroeconomics & Governance Date: March 28, 2018
Read article More on this topic More by this author

Opinion

Europe needs a strong Italy

Europe needs to have its Italian voice. A stable government is required not only to pursue domestic policies and remain fiscally prudent but also to negotiate on euro-area reform, priorities in the EU budget and intensifying competition in global trade.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 20, 2018
Read article More on this topic More by this author

Blog Post

Central banks in the age of populism

Two years of elections have shown that we live in an age of increasing political and economic populism. What are the consequences of that for central banks? We explore opinions about it, from both 2017 and more recently.

By: Silvia Merler Topic: Finance & Financial Regulation Date: March 19, 2018
Read article More on this topic More by this author

Podcast

Podcast

Euro-area governance: Where next?

Bruegel deputy director Maria Demertzis hosts this episode of 'The Sound of Economics', with Gideon Rachman, chief foreign affairs correspondent at the Financial Times, and Manfred Weber, chair of the EPP Group in the European Parliament, joining Bruegel director Guntram Wolff for a discussion of the future of euro-area governance.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: March 1, 2018
Read article More on this topic

Blog Post

Don’t put the blame on me: How different countries blamed different actors for the Eurozone crisis

Why did the eurozone have such difficulties coming to terms with its own shortcomings? The authors believe they have found part of the answer, through an algorithm-based cross-country media analysis.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: March 1, 2018
Read article More on this topic More by this author

Opinion

The EU’s Seven-Year Budget Itch

On February 23, EU members began negotiations on the bloc's multiannual financial framework for 2021-2027. But, with all countries focusing on net balances – how much they receive minus how much they pay – will the composition of spending bear any relation to the EU’s stated priorities?

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: March 1, 2018
Read article More on this topic More by this author

Blog Post

Clouds are forming over Italy’s elections

While the prospect of a gridlock reassured investors about the short-term risk of an anti-establishment government, Italy still needs a profound economic shake-up and is in no position to afford months or years of dormant governments.

By: Alessio Terzi Topic: European Macroeconomics & Governance Date: February 28, 2018
Read about event More on this topic

Past Event

Past Event

Bruegel - Financial Times Forum: The future of euro-area governance

The third event in the Bruegel - Financial Times Forum series looked into the future of euro-area governance.

Speakers: Maria Demertzis, Gideon Rachman, Manfred Weber and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: February 27, 2018
Load more posts