ECB QE2 started off on a strong foot, according to data released on Monday regarding the very first week of purchases. The overall increase in holdings of the four QE programmes was quite high for just one week relative to the announced monthly path of EUR 20 bn, as it totalled around half of this amount , at EUR 9 bn. Most of the increase in holdings was driven by the public sector (roughly EUR 4.5bn) and corporate bond programme, at almost EUR 2.8 bn. The CSPP portfolio expanded from EUR177.1bn at the end of October to EUR181.1bn on 8 November. With the data reflecting settled securities, this number should cover just four trading days of purchases.
Market expectations were for a much lower proportion for the corporate programme, with a range between 15% (average QE1 weight) and 20% of the overall amount. On a monthly basis, the consensus was pointing to a net purchase of corporate bonds between EUR 3bn and EUR 4bn for the whole of November, a target that seems close to being reached in just few days of operations. Given the much lower weight of the ECB’s portfolio in eligible corporate bonds vs other asset classes targeted by central bank QE, it would be reasonable in our view to expect a higher contribution of credit instruments to QE2. More flows targeting corporates and a lower weight of the public sector would also reduce the market’s perception on the scarcity of some government bonds. Looking back at CSPP1, it’s also interesting also to note that the weighting allocated to corporate bonds was inversely proportional to the overall monthly path, rising from just 11% under the highest EUR 80bn path to the 20% of the very last months of 2018, at a pace of EUR 20 bn.
Regarding the corporate bond programme, the 35 new issues added to the CSPP portfolio was also quite high by historical standards. In this respect, the ECB looks likely to act in the same way as when it started the first programme, spreading smaller purchases out over a large numbers of bonds, in order to have the broadest impact on the asset class.
These very first numbers bode well for corporate bond technicals. However, we obviously shouldn’t read too much into just one week’s worth of data. In past years November usually saw front-loading of purchases ahead of much lower activity in December, with volumes slowing down sharply in the last third of the last month of the year. 2019 is not probably going to be an exception, but the overall reading is supportive to the asset class, anyway.