After a couple of false starts it *looks* like the European Central Bank will start reporting the amount of government bonds it has been buying as part of its near-quantitative easing, tomorrow, Tuesday.
The Cover reported on Friday:
The ECB should on Tuesday give the first official indications of how much it has purchased under its newly launched Securities Markets Programme (SMP), which is understood to be primarily focused on government debt, but can also take in private debt securities such as covered bonds.
The ECB began buying €60bn worth of covered bonds last year, to help ease the stopped-up sector, and its current government bond-buying programme largely follows the same script. A key difference however, is that the central bank hasn’t declared how much of the debt it will be buying.
The reason for the obfuscation? The Cover quotes:
“The ECB has not said what it is buying, but I think they are deliberately leaving it unclear,” a head of SSA Debt Capital Markets told EuroWeek, The Cover’s sister publication. “Everyone knew precisely what the Bank of England was buying when it did its [£200bn] programme and those Gilts within the basket shot up while the Gilts outside it fell so that was not the most effective mechanism. The ECB’s mechanism is more effective for being mysterious.”
ECB purchases seemed to have had some success in narrowing peripheral bond spreads for the first half of last week, but there was speculation on Friday that the central bank had stepped back from Club Med markets — which might have helped contribute to market jitters that day.
In fact, Goldman Sachs’ chief European economist Erik Nielsen, was kept busy this weekend by worried investors:
With stability in the debt market broadly in place by mid-week, and successful auctions in Southern Europe out of the way, the ECB eased up on its purchases, but with most of Continental Europe out Thursday-Friday the sovereigns started to drift wider again – and significantly so on Friday. And when the ECB stayed away instead of returning to put a floor under the sovereigns as they had earlier in the week, doubts about their resolve re-emerged and accelerated the euro sell-off, driving equities lower in the process. But is it really possible that the ECB – even under pressure from the German public – has about spent what they intended to spend? I really don’t think so. The week ended on a plain dreadful note, and by Friday night I started getting a rather large number of questions on whether we thought there would be another policy announcement this weekend. Well, if markets don’t stabilise by themselves this coming week I would be surprised if we don’t get more intervention from policymakers. As we have argued before, it seems entirely implausible that the authorities would have initiated the action last weekend only to drop the ball a week (or several weeks for that matter) later.
The amount of the ECB’s government bond-buying could end up acting as a minor indicator of the central bank’s resolve.
The consensus at the moment seems to be for about €20bn worth of sovereign debt bought last week. And according to the Cover, the data will appear in the ECB’s consolidated financial statements for the eurozone, published every Tuesday at 2pm London time.
Here’s Barclays Capital’s Laurent Fransolet:
The ECB has not communicated (yet) on how much bonds it has purchased, having decided to exclude them from the total of its daily Open Markets Operations on Friday 14 May (they should have started to appear there). This is a bit puzzling since it seems to us it will in any case have to report the purchases in its weekly financial statement published every Tuesday (for the end of the previous week), likely in Item 7.1 Securities Held for Monetary Policy Purposes, like the covered bonds purchases. The advantages we can see in using the Weekly Statement rather than a daily running number are that it will give only one global number per week rather than a daily tally, be a bit less ‘visible’ in a way, and it make sense to announce a weekly number if it is going to sterilise on a weekly basis . . .
Speaking of sterilisation — the ECB should also provide details this week of just how it intends to sterilise its bond purchases — thereby avoiding the dreaded `printing money’ QE-scenario.
A busy week for ECB-watchers, then. And for the ECB.
Related links:
What the ECB has been buying – FT Alphaville
The slippery slope to non-sterilisation – FT Alphaville
Europe’s QE is sterilised and sensitive – FT Alphaville