ECB Slashes Government-Bonds Share as Buying Program Nears End

As the European Central Bank’s asset-purchase program nears its end, public-sector bonds are becoming less central to it.

The share of government and supranational debt bought by the ECB fell to 69 percent in January, the first full month since the central bank reduced its monthly buying to 30 billion euros ($37 billion). Conversely, the share of corporate-sector bonds jumped to 19 percent.

Changing Composition

Share of public-sector bond-buying drops as QE nears its end

Source: ECB

This marks a stark change from the program’s previous composition. Over the course of 2017, public-sector bonds accounted for about 85 percent of the ECB’s total purchases, while corporates averaged just above 10 percent.

ECB policy makers had signaled that the composition of QE might vary as the four years of extraordinary stimulus draw to a close.

In October, when the reduction to 30 billion euros per month was announced, ECB President Mario Draghi had said the central bank would “continue buying sizeable quantities of corporate bonds.”

Bond-buying is scheduled to run until September at least, with policy makers expecting to add a short taper before net purchases fall to zero. Some officials have urged Draghi to give investors a clearer signal on how long interest rates will stay low.

“With the smaller scale of purchases, the Public Sector Purchase Program inevitably has less impact now on cumulative country shares and weighted average maturity, as well as less interest for investors given the diminished potency of the program,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale. “This is reflected in a great focus on sentiment rate hikes as a market driver.”

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