Has The ECB Run Out Of Willing Bonds Sellers On The Long End?

Ever since its launch (as well as before) the ECB’s QE program has been plagued by suggestions that there may not be enough bonds for Mario Draghi to monetize in order to continue the program until its scheduled conclusion in September of 2016. Or rather, the bonds are there, but due to regulatory, liquidity and purely technical reasons, there is a scarcity of willing sellers at any price (a price which at a minimum yield of -0.20% per CUSIP assures sellers of guaranteed profits).

Which is why many carefully poured over today’s monthly update of the ECB’s public sector purchase programme (PSPP) aka QE for the month of April, to see if there was a decline in purchases, or if there was anything else worth noting.

On the surface, things were great: after purchasing €47.4 billion in March, the ECB purchased a total of €95.1 billion through April 30, or €47.7 billion in April: a €300 million increase from the previous month.

The breakdown by nation also revealed nothing substantial, with that biggest wildcard of all, Germany, seeing a moderate increase in purchases with Draghi buying €11.1 billion in German bonds, after purchasing a virtually identical amount the month before.

However, a very different picture emerges when looking at the breakdown by weighted average remaining maturity of ECB bond purchases.

As a reminder, a month ago we learned that the average weighted average maturity in the first month of monetizations as of March 31 was 8.56 years.

What is surprising is that as of April 30, this average maturity dropped substantially, or by 0.31 years, to 8.25, which also suggests that in April alone, the average maturity of purchased bonds must have been some 0.62 years lower, or roughly under 8.00 years.

Further, one look at the chart below shows that nowhere was the scarcity of long-maturity bond (or sellers thereof) more acute than in Spain, which in March had the longest average maturity of all nations at 11.66 and has since tumbled to 9.73. Since the amount of Spanish bonds purchased in March and April was nearly identical, it implies that in April the ECB bought bonds with an average weighted maturity somewhere in the 7.8 year range: a huge drop month over month.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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