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What is the ECB Buying?
The ECB is a month into what it has signaled will be at least an eighteen month asset purchase program. It had begun buying asset-backed securities and covered bonds earlier, but starting last month began buying sovereign and supranational bonds.
As of April 3, the ECB settled 4.89 bln euros of ABS purchases, 65.67 bln euros of covered bond purchases and 52.52 bln euros of public bonds (sovereigns and supranational bonds).
Even though the public bond purchases were not initiated until the second week of March, the ECB aggressively pursued it objective and settled roughly 60 bln euros of assets last month. This was composed of 5.68 bln euros of supranational bonds and 41.68 bln of government bonds and about 2.6 bln euros covered bonds/ABS.
The average maturity of the government bonds the ECB has purchased is about 8.5 years. There is some variance. Lithuania, Latvia, and Slovenia purchased with a weighted average of less than 6.5 years before maturity. The Netherlands average is about 6.75 years. Spain and Portugal are on the other side, with average maturities about 11.6 years and 11.0 years respectively.
The sovereign bond purchases are weighted by the capital key, which is their contribution to the ECB and is roughly proportionate with the size of their economy. As of March 31, 11.06 bln of German bunds were purchased. The weighted average maturity is 8.1 years. France is second with 8.75 bln of bonds purchased and an average maturity of 8.22 years. Italy, the third largest, bought 7.6 bln euros of government bonds. The average maturity was a little more than 9 years.
Around 5% of the bonds the Eurosystem will buy have been bought. Therefore, one should not draw hard and fast conclusions about the maturity structure. However European central banks are most interested in driving down long-term interest rates. The core countries especially appear to be minimizing the purchases securities bearing negative interest rates.
The ECB's rules allow for the purchase of negative yielding bonds but only up to the -20 bp deposit rate. The German curve is negative for seven years, but only up to four years have negative yields near -20 bp. French rates are negative for four years, but no bond is yield is lower than the ECB's deposit rate. The Dutch curve is negative through five years, but only the 2-year note yield is below -20 bp.
One cannot draw high conviction conclusions about the pace of purchases. Of the four weeks of data, the first week was not full and the last week was interrupted by the Easter holiday. The middle two complete weeks showed the ECB buying an average of 15 bln euros of bonds a week.
One of the big concerns was that the ECB would struggle to find sellers of bonds. The first month showed little strain. European bond yields generally fell over the past month. Ironically, yields fell more Germany and France (10-year yields -23-25 bp) than in Spain, Italy and Portugal (-8, -10, 14 bp respectively).
The combination of the deflation, the ECB's negative deposit rate and now sovereign bond purchases is forcing rates negative where one might not expect to see them. Ireland, for example, has negative yields on 1, 3 and 4 year bonds. Spain sold 6-month bills yesterday with a slight negative yield. The three month bill offers a 1 bp guaranteed loss (annualized).
When looking at the debt profile of Japan, many economists focus on the net debt rather than the gross. The net debt is the gross debt excluding the debt helped by other government agencies. Central banks are nominally independent but are part of the government. For example, many central banks remit interest payments or profits back to the central government.
As central banks buy government bonds, this distinction between gross and net becomes more significant. For example, the gross debt of the US is near 90% of GDP, but the net is closer to 67%. Similarly in the UK, the gross debt is a little above 90% of GDP while the net debt is near 63%. Japan's net debt is near 95% of GDP, but the gross debt is 235%.
Some who are opposed to QE in principle are worried not only about the distorting impact central bank activity on markets, but also because of the temptation to treat the debt central bank's balance sheet differently from other debts. From a risk and sustainability point of view, those domestic bonds on the central banks' balance sheets are not the same as private sector investors. There are some who have suggested that central banks can ultimately forgive its sovereign debt. This seems somewhat dubious, and even if legal, could be disruptive. Others have proposed swapping the sovereign debt for perpetual zero coupon paper, which would preserve the fiction.
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"Everything except gold." - Mario the Drag Queen
Debt is about one thing and one thing only; artificially induced enslavement of entire populations.
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Therefore, they, the Military-Industrial-Corporate-Elitie can and will print debt out of thin-air, as a WMD. The people they need to control and later dispose of (Agenda 21), are the ones the same sinister people place the burden upon; this will, in the end, lead to their eternal destruction.
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No worries unless you are like them and you likely are if one examines themselves honestly; the difference is the circumstance of power, authority and resources. For how do they operate at the moral level; by lies, deception, and "murder"...the same as all people; just on a grandeur scale and all will be judged.
They ain't buying Greek anything.
Shoot, Marc must be desperate for clicks to post his crap midweek. Bad enough to have to endure it at the weekends.
"...perpetual zero coupon paper..." or perpetual worthless paper.
So the ECB is buying bonds, at a loss.
tick tock motherfuckers...
Not exactly the whole picture. The ECB is buying bonds at a loss and paying for them by creating ECB deposits with even negative-r yields.
The banks sell the NIRP bonds at a profit, and then receive NIRP-er liquid deposits. Then they proceed to spend the NIRP fiat and stick into whoever else they can while ECB earns a positive spread.
Problem is: nobody wants the hot potato. What happens ultimately with this NIRPer ultra-liquid "capital"?
Well I guess it will find a home with the only party who actually wants it: when some debtor destroys it by paying back his debt, thereby feeding the deflation monster.
When there are no debtors left capable of producing something of value, whoops, the NIRPiest ultra-liquid piece of shit electronic bits on the planet accelerate to the speed of light.
Oh and yes, tick tock indeed.
Captain, prepare for warp speed.
The ECB is a little vague on the whole profit and loss thing, but not to worry, Super-Draghi will lead them to the promised land......
This euro QE is just drapery and curtains for the muppets while they wait for the death of the dollar.
We watch.
Meanwhile, fuck the clintons, fuck the bush's. Say no to both family dynasty wannabes.
Right, what part of all fiat will die don't people understand?