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ECB QE Monitor - January 2021

 

Key points for this month:

  • In December, the ECB bought €57.2bn under the PEPP and €21.1bn under the APP.
  • The ECB's balance sheet is now equivalent to 61% of euro area GDP compared to 39% at the start of the year.
  • 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 €757bn or 41% of its EUR1.85tn PEPP envelope.
    • The pace of PEPP purchases in December was stable compared to the last 3 months and remained around €60bn.
    • No granular details for PEPP: the ECB will only publish details of PEPP composition on a bimonthly basis and the next one will be in early February 2021.
  •  APP
    • Purchases under APP will continue at target pace of €20bn per month. The €120bn additional APP envelope is now exhausted.
    • In December 2020, ECB net asset purchases under APP declined to €21bn versus €28bn in November.
    • In December, APP by programme:  PSPP (€17.8bn; 84.6% of total), CSPP (€2.4bn; 11.3%), CBPP3 (€1.5bn; 7.3%) and ABSPP (€-0.7bn; -3.1%).
    • In December, deviation of PSPP purchases from capital key proportions was in favor of Supranational and Germany against Italy.
  • Redemptions:
    • APP redemptions in December 2020 will total €11.3bn, of which €8.9bn will be PSPP redemptions. Between December 2020 and December 2021, total APP redemptions will be €246bn, of which €191bn will be PSPP redemptions

Our convictions:

  • The main pillars of the new package announced in December by ECB are the PEPP and TLTRO. The new package focused heavily on extending the duration of monetary accommodation rather than its intensity.
  • Pandemic bond-buying program was raised by €500bn euros to a total of €1,850bn and extended by nine months to at least the end of March 2022.
    • Strong emphasis on program flexibility.
    • Net purchases will be conducted until the ECB judges that the coronavirus crisis phase is over.
    • Principal payments from maturing securities purchased under the PEPP will be extended until at least the end of 2023.
  • Technical factors will continue to play a major in the euro fixed income market in 2021.
    • ECB firepower over the next 15 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.
  • Ultra-cheap credit for banks, even with strong conditionality, are not enough to avoid a tightening in bank’s lending conditions for companies.
    • “Banks referred to the deterioration of the general economic outlook, increased credit risk of borrowers and a lower risk tolerance as relevant factors for the tightening of their credit standards for loans to firms and households”.

Publication

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BELLAÏCHE Mickael , Fixed Income Strategist
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ECB QE Monitor - January 2021
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