JPMorgan Boosts Bond Mismatch to $600 Billion as ECB, BOJ Buy

Sovereign-bond purchases by the European Central Bank and the Bank of Japan are likely to fuel demand for fixed income that may exceed issuance this year by more than previously estimated, bolstering bond prices, according to JPMorgan Chase & Co.

Central-bank bond-buying will increase even after the end of a Federal Reserve program last year, leading to $600 billion in demand in excess of supply, according to a note to investors published by team of JPMorgan strategists that included Nikolaos Panigirtzoglou in London. The bank earlier estimated $412 billion in demand in excess of supply.

“The demand-supply backdrop is even more likely to remain supportive of bond markets this year,” Panigirtzoglou wrote.

ECB and BOJ purchases to spur economic growth will total $1.3 trillion this year, topping the $1 trillion bought by policy makers in the U.S. and Japan in 2014, according to Panigirtzoglou. Central-bank bond-buying helps explain how the bond market has retained its vigor even as the end of Fed purchases removed some of its monetary support.

The Fed ended its bond-buying program in October amid economic progress and signaled in December it’s on track to raise interest rates this year for the first time since 2006. The ECB meets Jan. 22 amid speculation it will start sovereign-bond purchases this year, as the BOJ continues its program.

The demand-supply mismatch helps to explain why bond yields worldwide have fallen by more than half since the financial crisis in 2008 to 1.53 percent, according to Bank of America Merrill Lynch bond indexes. That’s just 0.02 percentage point above the record-low reached in October, even as borrowing by governments, businesses and consumers added $30 trillion to the market for debt securities.

Before it's here, it's on the Bloomberg Terminal.