ECB Finds QE Weak Spot in Baltics Struggling to Hit Quotas

Lithuania struggled to fill its quota in the first month of the European Central Bank’s quantitative-easing program and Estonia didn’t buy any sovereign bonds, highlighting challenges policy makers may face in implementing the plan through 2016.

The Lithuanian central bank bought 39 million euros ($42 million) of sovereign bonds in March, about 0.1 percent of the amount purchased across the euro area. Based on the ECB’s capital key, a guide to national purchases, Lithuanian debt should account for about 0.6 percent of the total. Estonia spent 117 million euros on agency debt.

“There’s less Lithuanian government debt available meeting the criteria” for purchases, Mindaugas Vaiciulis, executive director of the central bank’s banking service, said in response to e-mailed questions. To make up for the shortfall, the institution “also conducts purchases of European institutional debt,” he said.

The purchases are part of the ECB’s 1.1 trillion-euro QE program, which will see monthly purchases of 60 billion euros through September 2016. Sovereign debt will contribute the lion’s share, while central banks will also buy debt issued by European agencies, as well as asset-backed securities and covered bonds. The Frankfurt-based institution released a first breakdown of the public debt it bought on Tuesday, which ranged from 11.1 billion euros in Germany to 5 million euros in Malta.

Alternative Purchases

The amount spent on Lithuanian debt was the second-lowest, even though six of the 19 euro nations are smaller based on the capital key. Estonia’s central bank governor Ardo Hansson has said his institution may buy bonds of state-owned companies in lieu of sovereign debt.

Government-bond purchases totaled 41.7 billion euros across the currency bloc, while 5.68 billion euros was spent on supranational bonds.

“Aiming to avoid market distortions at some segment of the yield curve of government bonds, the Lithuanian central bank conducts purchases at a pace that, according to current market conditions, ensures consistent implementation during the whole period of the program,” Vaiciulis said. “The amounts of purchases may grow depending on the government’s new debt emissions and refinancing plans of earlier emissions.”

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