Euro-area sovereign bond holdings: An update on the impact of quantitative easing

By the end of September 2018, the European Central Bank (ECB) and national central banks (NCBs) held a total of €2,532 billion under the expanded asset purchase programme (APP). €2,076 billion of these assets were bonds acquired under the ECB’s public sector purchase programme (PSPP). Holdings under the asset-backed securities purchase programme (ABSPP) reached €27 billion by the end of September, while assets bought under the third covered bond purchase programme (CBPP3) amounted to €259 billion (see here for breakdowns). Starting in June 2016, the ECB also added a corporate sector purchase programme (CSPP), which now stands at €170 billion.

Figure 1 shows the deceleration in monthly asset purchases over the past two years. Following the peak in 2016, net purchases were reduced from €80 billion to €60 billion in March 2017 and from there to €30 billion by the end of last year. On October 25th the ECB’s Governing Council announced that it will pursue net purchases of €15 billion for the last quarter of 2018 before it ends net purchases and limits the programme to reinvesting maturing securities under the APP for an “extended period of time”.

Figure 2 shows that asset purchases under the APP have led to a doubling of the Eurosystem’s balance sheet from €2,150 billion at the end of 2014 to €4,620 billion in September 2018. At the same time, total outstanding general government debt in all 19 euro-area countries increased by €392 billion between the end of 2014 and January 2018.

As a result of the ECB’s PSPP, the share of government bonds held by NCBs surged in the last three years from around 5% to 15-20% of total outstanding government bonds, as illustrated in Figure 3.

The recently updated Bruegel sovereign bond holding database gives an insight on how the Eurosystem’s purchases of government bonds are offset by other investors on the level of the issuing sovereign. This is of interest because the holding structure of sovereign bonds has important consequences for fiscal sustainability, the bank-sovereign ‘doom loop’ and international financial contagion.

Table 1 shows the percentage-point change in institutional holdings of domestic sovereign bonds between Q4 2014 and Q2 2018. Our updated figures highlight that the central bank purchases in Spain have been offset mainly by reductions in resident banks’ holdings, while in France, Germany, the Netherlands and Portugal sovereign-bond purchases by the NCBs seem to have been largely offset by a decrease in non-resident holdings. In Italy, other residents such as households and non-financial corporations have seen the largest decrease in their relative share in sovereign bonds.

The expansion of QE in the euro-area is expected to come to a halt by the end of this year. Its impact on the distribution of sovereign bond holders is in line with what our previous blog posts concluded: with the exception of Spain, sovereign bonds purchased by the ECB have not been offset by resident banks, but mostly by non-resident sellers.