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9.04.2021 82

ECB QE Monitor - April 2021

Published April 9, 2021

5 to 10 minutes

5 to 10 minutes

Key points for this month


  • ECB PEPP & APP: pace of purchases is accelerating
    • In March, total net purchase pace was €96.8bn vs. €81bn in February and €71bn in January, a clear uptick, which is really in line with our forecasts of €90-100bn/month.
    • PEPP: pace of monthly buying picked to €73.5bn in March from €53bn in February. As the path increased just in the weeks following the ECB meeting, March is likely to position itself between Jan-Feb lower levels (on average monthly EUR 55bn) and April-June monthly flows expected to be in EUR 80-90bn higher range.
    • APP: the ECB settled €23.3bn in March vs. €21bn in February, above the target pace of €20bn/month.
       
  • Purchase of public sector bonds under PEPP: longer maturities bought in last two months
    • The weighted average maturity (WAM) of overall public sector bond purchases under PEPP increased by almost 1year, likely above 9years in Feb-Mar 2021.
    • Most of the increase in duration of PEPP portfolio in core countries, with a new record high for Germany and Netherlands in last two months. But this time also in periphery countries like Italy and Portugal previously recording a relatively steady decrease in average duration since the start of the programme.
    • The generalized increase in duration of ECB purchases has probably to do with two main reasons:
      • The ECB “adapted” its demand to record supply of longer duration debt at EGB level YTD,
      • Higher bond reinvestments supported the lengthening of German bunds average duration in PEPP, on the back of increased redemptions of short term paper bought last year and reinvested in longer instruments since in the last months.
         
  • Capital key:
    • PEPP: country breakdown almost in line with capital keys across all major countries.
    • APP: the ECB made its purchases converge back towards the capital key.
       
  • The purchase of PEPP in Supranational achieves its objective:
    • For second time in a row, PEPP buying in Supranational reached 10% of public sector bond purchases, the target set under PSPP: since PEPP started the 10% share was reached just in the last four months, together with the step up in EU issuance for the SURE fund.
    • ECB buying in Supranational is likely to reach a record in 2021, helping absorb the large pick-up in issuance related to new EU issuance.
       
  • CSPP: corporate support
    • At the same time, despite PEPP remains tilted to the public sector, CSPP received a higher weight in APP in March (up to 30% from 20% in February), confirming that the step up in PEPP may lead to a more “private sector friendly” APP over the next months.

Our convictions


The increase in duration adapts to supply trends, is partly the effect of higher redemptions and probably reflects the willingness of the ECB to lean against the repricing at the long-end of the yield curve, notably in core countries. The PEPP remains “the” tool designed to absorb net supply of EGB, and to support EU higher, upcoming issuance, while the APP may be more tilted to private programmes following PEPP purchases step up, in case of need. The fact that capital keys were followed quite strictly confirms the willingness of not deviating from parameters, unless unwanted volatility in spreads materialize. ECB March has been a month of two tails, split between previous lower path and new higher weekly purchases: we may assume net purchases to increase to the EUR 80-90bn range over the next few months. Remaining ECB firepower looks more than adequate to flexibly manage PEPP in order to reduce unwanted tightening in financial conditions due to global trends.


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