As worries that the European Central Bank will soon run out of sovereign debt to buy for its quantitative-easing program persist, Europe's over-leveraged governments are declining to lend a hand.
According to a study by JPMorgan Chase & Co., net issuance of new debt this year will fall well short of the ECB's appetite, which runs at a monthly clip of 80 billion euros ($88 billion). While that's just a drop in the ocean compared with the total "eligible universe," the data illustrate the speed with which the central bank is eating up the market.
The ECB's demand for bonds this year was in fact about three times of what governments will put on the market.
Government-bond net issuance in 2016 will total 214 billion euros -- compared with the total of 6.9 trillion euros of bonds nominally eligible. Of those, according to an July 12 estimate by Societe Generale's Anatoli Annenkov, 5.4 trillion euros were above the ECB deposit rate and thus actually available for purchase.
On the one hand, this is a sign of the magnitude of the easing that central banks around the world have embarked upon. In Japan, where entrenched deflation has pushed the Bank of Japan to deploy stimulus on an even grander scale, the central bank buys at more than twice the pace of issuance.
Yet, the data also show that fiscal discipline still means something in the euro area, despite record-low yields. European Union budget rules, even if they're not perfectly adhered to, are a barrier to states just binging on borrowed cash at a time of very low financing costs. That also plays a role in preventing the kind of demand-focused fiscal stimulus that some monetary policy makers have called for.
“While more issuance is where the ECB could get some help in finding bonds, no country is really planning any major fiscal stimulus,” Annenkov says. “The main problem is the combination of already historically high public debt ratios and the EUs fiscal rules.”