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ECB QE Monitor - February 2021

 

Key points for this month:

  • In January, the ECB bought €53bn under the PEPP and €17.9bn under the APP.
  • The ECB's balance sheet is now equivalent to 61% of euro area GDP compared to 39% at the start of 2020.
  • PEPP:
    • Pandemic bond-buying program was raised by €500bn euros to a total of €1,850 billion and extended by nine months to at least the end of March 2022.
    • The ECB already used up around €810bn or 43% of its €1.85tn PEPP envelope.
    • The pace of PEPP purchases in January was stable compared to the last 3 months and remained around € 50/60 billion.
    • The ECB also published the bi-monthly detailed split for PEPP(Dec.2020-Jan.2021 at this release).
      • Since the implementation of the PEPP, 95% of this envelope outstanding is in public sector securities
      • Supranationals accounted for over 10% of public sector purchases for the first time since the programme's inception
      • Germany, France, Italy and Spain all saw very slight upside deviations from the capital key over the Dec-Jan period
  •  APP
    • In January 2021, ECB net asset purchases under APP declined to €17.9bn versus €21bn in December.
    • In January 2021, APP by programme:  PSPP (€13.7bn; 76.1% of total), CSPP (€4.9bn; 27.5%), CBPP3 (€0.1bn; 0.4%) and ABSPP (€-0.7bn; -4%).
    • In January 2021, deviation of PSPP purchases from capital key proportions was in favor of France and Italy against Germany.
  • Redemptions:
    • APP redemptions in January 2021 will total €25.5bn, of which €15bn will be PSPP redemptions. Between January 2021 and January 2022, total APP redemptions will be €255bn, of which €196bn will be PSPP redemptions

Our convictions:

  • ECB QE program is currently projected to extend into march 2022, but pandemic trends and post-covid economic fragmentation in the Eurozone are likely to make ECB support still needed, also in order to make the NGEU more effective. Our two main concerns:
    • Tightening in bank credit conditions once government debt guarantees will come to an end.
    • The hawks could challenge the stance of the ECB monetary policy.
  • Technical factors will continue to play a major in the euro fixed income market in 2021.
    • ECB firepower over the next 14 months is huge : €1100bn (PEPP) +  €20bn/month (APP)  or   €93bn/month
    • ECB’s PEPP would ensure that net issuance is negative for all EGBs. As of end of 2021, % of German public securities held by the Eurosystem could rise above 40%.
    • The ECB will purchase €8-10bn of corporate debt per month. As of the end 2021, the Eurosystem will held 35%-40% of the eligible of corporate debt.

Publication

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BELLAÏCHE Mickael , Fixed Income and Credit Research Strategist
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ECB QE Monitor - February 2021
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