Post on 20-Jun-2020
The Eurosystem’s asset purchase programme
ECB Central Banking SeminarFrankfurt, 13 July 2018
Katja HettlerLia CruzMonika Znidar
Euro Area Bond Markets SectionDG-Market Operations
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Overview
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The Eurosystem’s asset purchase programme
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Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
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5 Conclusion and next steps
Securities lending
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Overview
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1
2
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Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
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5 Conclusion and next steps
Securities lending
The Eurosystem’s asset purchase programmes ECB-PUBLIC
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The APP – a bird’s eye view
The expanded asset purchase programme (APP): 4 programmes introduced in 2014 - 2016
Source: ECB.
Timeline of non-standard measures
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The different components of the APP
PSPP represents more than 80% of total APP holdings
At amortized costs, in euro billion(31 May 2018)PSPP 1,992.9CBPP3 254.3CSPP 156.8ABSPP 27.4Total APP 2,431.4
Source: ECB.Last observation: 31 May 2018
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Monthly change in holdings (at amortised cost)
The different components of the APP
Net APP purchases have been calibrated over time…
Source: ECB. Latest observation: 31 May 2018
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… and the reinvestments of redemptions also play a relevant role
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Realised and expected APP redemptions (rolling 12 month period)
The different components of the APP
Source: ECB. Latest observation: 31 May 2018.
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Overview
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1
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3
Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
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5 Conclusion and next steps
Securities lending
The Eurosystem’s asset purchase programme ECB-PUBLIC
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PSPP
Euro-area sovereign / Agencies
EU institutions (supranational & institutional)
ECB NCB NCB
10% 80%
90% 10%
Loss-sharing Non loss-sharing % Proportion of purchases
PSPP covers a broad range of government linked entities
PSPP design and modalities (I) ECB-PUBLIC
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• NCB purchases are determined by the ECB capital key, with some flexibility
• Substitute purchases for NCBs are possible to reach capital key• Purchases also at negative yields, below the deposit facility rate only
to the extent necessary• The implementation of the PSPP aims ex ante at market neutrality in
the sense of avoiding dislocations in euro area government bond curves within the minimum maturity of 1 year and a maximum maturity of less than 31 years.
• Blackout period to avoid direct influence on primary market price formation and also important with respect to monetary financing prohibition
• Issue/issuer limits to avoid blocking minority for CACs and to avoid becoming overly dominant player in sovereign bond market
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PSPP design and modalities (II) ECB-PUBLIC
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Insights into the implementation
• Purchases are coordinated within the Eurosystem on a daily basis via chat and teleconference at Portfolio Manager level
• Selection of bonds is based on– Pricing / spread analysis– Limit restrictions – Feasibility considerations– Scarcity in the market – Counterparties inventories and positions
• Trades are conducted with a wide set of counterparties• Purchases are done bilaterally or via reverse auctions• Most purchases in government bonds are done electronically
PSPP - implementation
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10-year euro area government bond yields at record low levels
Euro area bond market developments (I)
VLTRO announcement
Draghi’s London Speech
ABSPP & CBPP3 announcement
PSPP announcement
_______________________________________________________________________________________________________________________________________Source: Bloomberg, ECB Staff calculations. Last observation: 31 May 2018.
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• 2-year French-German sovereign yield spreads increased around French presidential elections in Apr-May 2017, but stabilised and returned quickly to previous levels
• 2-year Spanish-German sovereign yield spread broadly stable, despite political developments in Catalonia in Oct 2017
_______________________________________________________________________________________________________________________________________Source: Bloomberg, ECB Staff calculations. Last observation: 31 May 2018.
Political risks in Europe with (temporary) market impact
Euro area bond market developments (II) ECB-PUBLIC
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-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0%10-year IT10-year DE
0
100
200
300
400
500
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2011 2012 2013 2014 2015 2016 2017 2018 2019
bps
14
Italian political developments with significant impact on Italian sovereign debt market
IT-DE yield spread
Bond yields
0.0
0.5
1.0
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2.0
2.5
3.0
3.5
0
50
100
150
200
250
300
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Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18
Source: Bloomberg.Last observation: 04 June 2018.
Euro area bond market developments (III)
_______________________________________________________________________________________________________________________________________.
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Overview
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1
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Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
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5 Conclusion and next steps
Securities lending
The Eurosystem’s asset purchase programme ECB-PUBLIC
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ABSPP CBPP3 CSPP
Objectives / motivation
• provide credit to the real economy;
• help lenders diversify funding sources
• Contribute to the revitalisationof a more sustainable securitisation in the euro area
• facilitate credit provision by banks to the real economy
• support financing conditions in the euro area
• strengthen the pass-through of the Eurosystem’s APP to financing conditions of the real economy;
• provide further monetary policy accommodation
Eligible Universe
Mon. pol. eligible ABS (subject to Due Diligence assessment)
Mon. pol. eligible CBs for own use & multi-cédulas
Non-financial and financial corporate securities (excluding
unsecured bank bonds)
Minimum rating CQS3 CQS3 CQS3
Maturity All All 6 months – 30 years
Issue Limit 70%* 70%*/** 33%/70%*/**
Issuer limit No Yes** Yes*
Purchases 1ary & 2ary
market1ary & 2ary
market1ary & 2ary market
(no 1ary for public sector)
Implementation 6 NCBs NCBs and ECB 6 NCBs
Income/Loss Sharing Yes Yes Yes
16* Specific conditions for programme countries apply** Combined Eurosystem holdings from monetary policy and investment portfolios
Private sector parts of the APP: objectives & transparency ECB-PUBLIC
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Private sector parts of the APP: Review
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Since the start of the programmes, several positive developments are to highlight:
1. Broad based spread tightening….
Sources and notes: iBoxx indices. Last observation: 31 May 2018.
Covered bond asset swap spreads, per selected jurisdiction
Spreads of AAA-rated* floating rate RMBS with 5-7 years maturity (bps)
Source: J.P. Morgan. Notes: (*) rating at issuance. Most spreads are over 3-month Euribor. Last observation 31 May 2018.
0
100
200
300
Jan-
14A
pr-1
4Ju
l-14
Oct
-14
Jan-
15A
pr-1
5Ju
l-15
Oct
-15
Jan-
16A
pr-1
6Ju
l-16
Oct
-16
Jan-
17A
pr-1
7Ju
l-17
Oct
-17
Jan-
18A
pr-1
8
IT ESNL IEES-ECB elig. IT-ECB elig.PT-ECB elig.
ABSPPannouncement
ABSPP start
bpsCBPP3 Announceme
nt
CBPP3 Start
-40
10
60
110
160
Jan-
14
Apr
-14
Jul-1
4
Oct
-14
Jan-
15
Apr
-15
Jul-1
5
Oct
-15
Jan-
16
Apr
-16
Jul-1
6
Oct
-16
Jan-
17
Apr
-17
Jul-1
7
Oct
-17
Jan-
18
Apr
-18
bps DE ES IT FR
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Private sector parts of the APP: Review
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… with positive spill overs to non-eligible fixed income securities
Corporate bond spreads in EUR denominated investment grade vs high yield sector
Sources and notes: ICE BAML EUR corporate bond index, ECB calculations. Last observation: 31 May 2018.
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Private sector parts of the APP: Review
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2. Issuance remained healthy or even picked up…
Source: Dealogic, ECB calculations. EUR-denominated benchmark size primary market issuances. Last observation: 31 May 2018.
Covered bond issuance volumes Asset-backed securities issuance volumes
Source: JP Morgan and ECB calculation. Last observation: 31 May 2018.
0
20
40
60
80
100
120
2013 2014 2015 2016 2017 2018 (YTD)
EUR bn AT, BE, DE, FI, FR, NL ES, IE, IT, PT
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Private sector parts of the APP: Review
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… however it is not yet evident that new or infrequent issuers have become more active
Source: Dealogic, ECB calculations. EUR-denominated benchmark size primary market issuances. Last observation: 31 May 2018.
Corporate bond issuance volumesBond issuance by infrequent euro area non-financial corporate bond issuers
Sources: Dealogic, ECB calculations. EUR-denominated primary market issuances. Issuer is considered infrequent if they have no issuance over the previous 5 years. Last observation: 31 May 2018.
0
50
100
150
200
250
2013 2014 2015 2016 2017 2018(YTD)
EUR bn
CSPP started in Jun 2016
0
5
10
15
20
25
30
35
40
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
(YTD
)
EUR bn
CSPP started in Jun 2016
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Experience of the private sector parts of the APP: e.g. of the CSPP
CSPP at work: Eurosystem has bought >1,000 bonds, from all sectors and a variety of countries…
Sources: ECB, Bloomberg. Note: CSPP holdings as of end of Q1 2018. CSPP holdings with a remaining maturity below 6 months are excluded. The numbers may not sum to 100% due to rounding. The eligible CSPP bond universe contains all bonds that are currently eligible for the CSPP.
Split per country, sector and rating is generally in line with market capitalisation
• ECB coordinates purchases, executed by 6 NCBs, specialists in their jurisdictions• To guarantee smooth implementation, there is continuous communication on market
conditions, participation in primary market and of secondary market purchases
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Experience of the private sector parts of the APP: e.g. of the CSPP
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Source: ECB. Last observation: 31 May 2018.
(1) CSPP purchases vary month by month, including split between primary and secondary markets
(2) CSPP holds more of recently issued bonds (holdings per year of issuance)
Source: ECB, Bloomberg. Distribution based on nominal amounts. Last observation 31 May 2018.
… calibration considers market functioning and liquidity impact to ensure market neutrality…
0
1
2
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10
Jun
Jul
Aug
Sep Oct
Nov
Dec Jan
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May Jun
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Feb
Mar
Apr
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2016 2017 2018
EUR bn Primary market purchases Secondary market purchases
0%
5%
10%
15%
20%
25%
30%
35%
2018
2017
2016
2015
2014
2013
2012
2011
2010
<201
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CSPP-eligible bond universe CSPP holdings
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Experience of the private sector parts of the APP: e.g. of the CSPP
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Source: ECB. Note: Index: June 2016 = 100. Last observation: 31 May 2018.
(3) Evolution of the average CSPP trade size suggests that liquidity conditions have remained adequate
(4) Contribution of private sector programmes overtime illustrates flexibility in implementation
Source: ECB. Last observation: 31 May 2018.
60
70
80
90
100
110
120
130
140
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Index average trade size
…flexibility is the key
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
0
10
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30
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Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
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Dec
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Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
EURbn Total APP % of private sector purchases (rhs)
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Overview
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1
2
3
Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
4
5 Conclusion and next steps
Securities lending
The Eurosystem’s asset purchase programme ECB-PUBLIC
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Flexible set-up of the Eurosystem facilities
• Aim: To support bond and repo market liquidity without unduly curtailing normal repo market activity
• Common principles and pricing rules• Decentralised implementation Balance between harmonisation and adjustments to local markets
• Primarily targeting market makers• Strategic and fails lending facilities• Monitoring the markets and the usage of facilities To ensure the ongoing effectiveness
• Changes in parameters introduced when deemed appropriate
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APP securities lending ECB-PUBLIC
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Parameters of the ECB securities lending have been adjusted over the years
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APP securities lending
Date Decision / Event DescriptionApr 2016
Significant amendments of parameters
• Move to open repo• More favourable pricing schedule and lower
fails feeNov 2016
More flexibility in timelines for borrowing
Settlement possible at T, T+1 and T+2 (used to be only T+1)
Dec 2016
Introduction of PSPP SL versus cash
7 Eurosystem members (including the ECB) started accepting cash collateral (currently 9), overall limit of EUR 50bn
Dec 2016
Pricing of lending versus security collateral
Minimum spread lowered from 30 bps to 10 bps
May 2017
Introduction of term repo up to 2 weeks and change in cut-off time
In addition to open repo, borrowing on term repo basis introduced (up to 2 weeks) and longer cut-off time for returning bonds
Mar 2018
Increase in cash collateral limit
Limit on cash collateral received versus PSPP securities lending up from EUR 50 bn to EUR 75 bn.
Note: The marked changes were applied to the entire Eurosystem.
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Eurosystem PSPP on-loan balance rather stable this year, lending vs cash declining recently
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APP securities lending
Average balances over the month in euro billion
Source: ECB. Latest observation: 31 May 2018. Note: Includes average on-loan balance of SMP holdings.
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Secured market functioning has improved recently
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APP securities lending
Repo rates in selected jurisdictions
Source: BrokerTec. Latest observation: 31 May 2018.
-6
-5
-4
-3
-2
-1
0
Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18
% Italy Germany France Spain
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Overview
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1
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3
Public sector purchase programme (PSPP)
Private sector purchase programmes (CBPP3, CSPP, ABSPP)
Introduction
4
5 Conclusion and next steps
Securities lending
The Eurosystem’s asset purchase programme ECB-PUBLIC
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Conclusions and next steps
The APP, alongside other measures, has been instrumental in providing an adequate degree of monetary policy accommodation;
The operational set up of the several components of the APP is sufficientlyflexible to allow for market neutrality;
More responsive APP securities lending has led to increased lending volumes, coinciding with diminishing repo-market tensions;
Monthly pace of the net asset purchases is now €30 billion per month, and it is anticipated that, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, it will be reduced from October to December 2018 to €15 billion;
Positive net purchases will then end but reinvestments of principal payments will continue for an extended period of time and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
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