The ECB Has Bought €1.9 Trillion In Bonds: Here Is Who Sold And What They Did With The Money

Tyler Durden's picture

Since the ECB launched its sovereign debt QE, initially known as PSPP, in March 2015 and later expanded to include corporate debt, or CSPP, in June 2016, the world's biggest hedge fund central bank has created enough money out of thin air to purchase bonds with no consideration for price to grow its balance sheet, i.e. investment portfolio, by €1.89 trillion.

Meanwhile, over the entire QE period, net European bond new issuance has only amounted to €394 billion - only one-fifth of what the ECB has bought - and that only after picking up recently.  In fact, through much of 2016, there was hardly any net issuance at all according to Citi data.

Here, as Citi notes, It’s hardly rocket science that for every bond the ECB has bought there must have been a seller – either a new issuer or an existing holder, which means:

    Net € FI issuance = Domestic net buying of € FI + Foreign net buying of € FI + ECB net buying of € FI

Imbalances between desired issuance and desired holdings at the prevailing market price are what drive valuation changes until equilibrium is found. Put differently, if the ECB bought a bond from an investor who wished to remain in the € fixed income market, then that investor would buy from another investor, who could buy from yet another, but unless there was new issuance to invest in eventually prices would reach levels where someone would take the money out and put it somewhere else.

But who has been selling to the ECB? And where have they been putting their money?

That's the question Citi's Hans Lorenzen set out to answer, and since per the math above, net of issuance holdings of private investors must have fallen by more than €1.5 trillion, the answer would be rather material. Put that number into context, the €1.5 trillion in debt that someone sold without replacing, is equivalent to more than 9% of €-denominated bonds outstanding at the start of the program. Those are bonds which used to be held by private investors, who have now been given cash and have to park that cash somewhere else.

As Citi notes, "It truly is crowding out on an unprecedented scale."

Going back to Citi's question, here is the answer in two parts.

First, the "who" sold this €1.5 trillion in private holdings:

Using ECB data, we know that private banks have beem major sellers, to the tune of €645 billion since the start of QE, making up more than 40% of the decline in private holdings. Here the net selling has mostly been of government bonds (€293bn) other MFIs (€273bn), while corporate and other bonds only amount to €70bn. Aside from banks, Citi calculates that while non-resident European investors have sold €400bn since Q1 2015, with non-bank private Euroarea investors filling the gap of €795bn. This calculation challenges the predominant  assumption that the selling to the ECB has mostly been done by foreigners, as much of the non-bank net selling must have come from other domestic investors. When one adds Eurozone banks, it is clear that the majority of private selling in aggregate has been domestic.

The chart below breaks down the transactions in bonds issued by Euro-area residents by investor type. Aside from banks, the main sellers have been households and other financial institutions.

Second, where did the money go?

While the answer will hardly come as a surprise, there are - intuitively - four destinations where a euro pulled out of € fixed income could move into.

  1. stay in fixed income, but move into bonds denominated in other currencies;
  2. move out of fixed income and into another asset class (domestic or foreign), like equities;
  3. move into money markets;
  4. leave the securities market altogether, in which case you'd expect it to show up as a deposit (with a domestic or a foreign bank

While there are some potential complications here, mostly because there is no explicit data revealing the "mirror image" for the private selling of €-denominated bonds, if one lines up the transactions against Citi's proxy, consisting of net purchases of European equities, money market flows, and non-government deposits, and the directional terms of the resulting asset disposition proceeds emerge, or as Citi summarizes, "When investors
have been selling bonds, investments in our proxy have mostly tended to rise."

Furthermore, as shown in the second chart below, splitting up these “proxy investment outlets” into their constituent parts, it becomes clear that the bulk of the “delta” from before QE in 2014 is in an increase the rate of deposit accumulation and an increase in outflows from Eurozone investments. However, since QE began, the deposit accumulation has continued, but the purchases of equities and especially foreign investments have grown, and have accelerated markedly this year.

In short: the ECB purchased €1.5 trillion in bonds, mostly from European banks and domestic investors, with no regard for prices thereby virtually assuring booked profits for the sellers, who then turned around and purchased domestic equities, foreign investments, or converted the money into deposits and money market instruments.

And so, with the ECB set to taper with trial balloons that the ECB could cut its monthly QE by half or more, what happens next now that this swap is about to be throttled by more than 50%? Will households sell more or less bonds, and what will happen to yields? We will present one answer - an answer which the central banks do not want to hear - shortly.

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wildbad's picture

who will be caught holding? well if you're not sure who the patsy is..its you

jewish_master's picture

trickle down economy....

Chryoprase the Troll's picture

It doesn't take a genius to work out that when the historically unprecedented "Draghi whale" leaves the market, then there'll be an historically unprecendented bear market in bonds. Shut up and sell the rally.

Blue Steel 309's picture

AUDIT THE FED. I suspect most of their illegal asset purchases are laundered through the ECB.

jewish_master's picture

its the same beast. i dont think  the FED bought anything since march 2015 - they left it to th ECB. theres an article somewhere here that shows perfect correlation between world markets past 2008. the Fed  ended its program in october 2014 , and gave it the ECB on 4 month cool period so we dumb fuckers wouldnt notice its the same program. 

we the ppl should have restructured the system back in 2008. now it will be ugly. i only hope they get hanged for this. but the sheep are sheep and would rather kill each other in some ww3 bullshit. see how they eager to start conflict with N.K.  when the culprit is sleeping in the next neighbrhood.

EddieLomax's picture

A war does clean things up, but a war needs large growing populations.

This time the immigrants we've invited in will be as much trouble as those we are fighting, I doubt we could muster enough troops in Europe to sustain any sort of meaningful war.

So a crash instead looks the likely course.

Fireman's picture

When you're running a bankster sewer, be it the USSA or the EUSSR, a shit-smearted, toilet paper fiat "currency" is all you need to reach the orifices real money will never touch. However, the end days of the Ponzi scheme are fast approaching and the ensuing tsunami of toxic derivative shit will drown the Potemkin Village (idiot) "economy" of unpayable war debt on both sides of the Atlanticist swamp.

Let's blow up the planet to save the "economy".

seabass974's picture

A lot of the reductions will be Catalan bonds .. for the sake of unity.

Lex_Luthor's picture

The main question is if this is ever going to be repaid... of, course, it won't. Folks, a mojor wealth re-distribution (theft) is taking place right in front our eyes.

downwiththebanks's picture

When are your fascitarian writers going to cover the final nail in the coffin for your beloved coup plotters in Venezuela?

So many articles about toilet paper, deploying fake math, yet nothing when they get TROUNCED, yet again, in an election.

Sorry_about_Dresden's picture

Gonna be ugly when it, finally, goes down.

tuetenueggel's picture

No, because it frees many many people from political morons´ debt.

Ghordius's picture

good morning, ZeroHedgers

as often, the girls here in the office demand to see a "big comment" from me on those pages they avidly read every day, so here is one

the ECB bought 1.89 trillion bonds, yes. as I often point out, two things:

1. it's the Eurosystem, actually. meaning it's both the ECB and the six major national banks that do that. 80% of the "load" is on their books

2. don't use "trillions" if you can avoid it. use billions, they are big enough. i.e. that's 1'890 billions euros (note: not that long ago, one billion was the equivalent of a naval aircraft carrier or a nuclear armed "boomer" submarine)

anyway, to the beef:

"Meanwhile, over the entire QE period, net European bond new issuance has only amounted to €394 billion - only one-fifth of what the ECB has bought - and that only after picking up recently.  In fact, through much of 2016, there was hardly any net issuance at all according to Citi data. "

now, reflect on this: 394 billions of... new sovereign debt

amazing, isn't it? a reason to shout: WHY? WHY? why did the 19 countries' governments of the eurozone, which are responsible for the wellbeing of roughly 300 million citizens add more then 1'000 euros of debt per citizen on the heads of every man, woman and child over this period?

and there is it. this is over a period where the same sovereign countries could have had bigger budget deficits, adding more debt (like others did)

they could have added 1'500 billion... just to "feed" the EuroSystem's QE

this, my dear readers, is what our dear socialists here call "dreadful austerity" (and I call somewhat balanced budgets)

Dr. Professor Nobel Laureate Krugman... hates it. it's "anti-growth", in his view. it could lead people to stop believing his cargo cult of the "Magic Money Tree", aka "Neo-Keynesianism"

instead, a treaty was applied: the European Fiscal Compact

not that this article goes into such... details. this article goes into what ZH is going to show us, soon, i.e. how the ECB is going to "have nothing to buy, anymore", particularly the highest level German sovereign bonds

(obscure reference: the ECB has an internal rule that says: don't buy more then 33% of any sovereign bond holding)

this article, instead of going into all the above, poses the question if foreigners sold all those bonds

of course not. foreigners... are holding onto them. actually even citizens and sound/private banks are holding onto them

who sold them... were banks of a specific type: regional banks of the type where the shareholders are regional governments. banks that are usually quite small (we still have some 6'000 of them, note) and belong to municipalites, or German "Länder" (aka "Landesbanken") or those in Italy like the Monte dei Paschi di Siena (owned by both Siena, Florence and the Tuscany region, mostly) and so on

in the ancient Roman Emperor Vespasian's words... "the sponges" (ok, this might be really too obscure a reference)

lo and behold, Draghi and his merry bunch are still doing several things:

- everytime he talks, he talks down the EUR

- everytime he buys, he is offsetting, late and belatedly, what the other major national banks are doing (aka "Currency War")

- meanwhile, this QE... isn't about financing the sovereigns, at least not directly ("fig leaf" alert) and...

- he is indirectly bailing out hundreds of small banks owned by citizens through their municipalities and regions (while trolling that "perhaps there are too many of them around")

yes, the eurozone is doing QE. no, it is doing it... differently from most other "players" in this specific "game in town" on the planet

last thing you need to get all this in perspective: the eurozone... exports more then it imports, and... this applies to capital (aka "money") too, meaning it invests more in foreign enterprises and lends more to foreigners then the other way around

hope that was not "too much information". enjoy your day

Easyp's picture

Max Keiser refers to this as the socialising of bad private debt into publicly owned bad debt yet the little people, like me, have not been asked if this is ok?  It clearly is a massive screwover of taxpayers.

Ghordius's picture

yes, it is, at the same time, a "massive screwover of taxpayers" and...

... a hidden bailout of... taxpayers. from Bavarian taxpayers to Tuscan taxpayers, etc. etc.

meanwhile... neither the "screwover" nor the "bailout" were the reason for the QE

welcome to the great "currency wars"

EddieLomax's picture

"net issuance", if one country runs a surplus (Germany) then the net is less.

I don't think Italy, France or the others are looking any more healthy than 3 years ago, all that's been done is to kick the ball down the road.

The revolving door or debt with Greece for example has creeped higher.

hooligan2009's picture


i have a few minutes, before my next appointment, so as an exercize i show a counter to the fiscal compact.

the fiscal compact is not worth the paper it is written on. here are just three reasons -

1. price rigging of interest rates by the ECB to conceal the importance of the difference between general budget deficit and structural deficit - that is, the existing debt burden that is subject ot the mathmatics of compound interest

ot even this pretty formula for a rules based solution can protect from the "shocks" of the develpment of mankind in a way that "gaps" with advances in knowledge or from wars/changes in political paradigms.

Bt + Ct + Ct-1 + Ct-2 b*t = Yt-3 * (1 + Ypott)(1 + Pt) * (1 + Ypott-1)(1 + Pt-1) * (1 + Ypott-2)(1 + Pt-2)    


the difference between the general budget deficit and the structural deficit equates to the interest on goverment debt. the rate of interest on goverment debt has been fixed/rigged by the ECB, via QE/ZIRP and no longer reflects the risks of default, inflation, liquidity or the slope of yield curve - the only way to control (over the short term) these risks, is via a an equivalent to a commuist dictatorship, here, that part of the EU politburo called the ECB.

without QE/ZIRP, ten year bunds would be yielding around 3%, spain/italy 5% and france 4%. the plan is that the ECB uses financial repression to discourage savings and suppress fair returns to savers/pensioners in exchange for progress on government structural deficits. even with "progress", 60% debt to gdp ratios and 5% interest rates = a 3% fiscal deficit and an the implied fiscal balance - that is in excess of the 0.5% structural defict target and is assumed to simply "go away" - it won't.

2. european governments do not provide estimates of unfunded liabilities, so government debt excludes future liabilibilties for pensions - these will increasingly impact the sturctural deficit, as more and more people draw larger pensions that are funded from the general budget. countries like germany do not project their pension costs and these pension benefits are larger than those of the US, which in turn has around 50 trillion of unfunded pension liabilities - conservatively, europe has a larger unfunded burden, since its pensions are bigger and its population (excluding 200 millon new entrants to the EU of 510 million people in the EU area that have not - yet - made such pension promises, so just germany, benelux, france, italy and spain) - the EU's unfunded pension iability is at a minimum 50 trillion - this is not included in government debt issued - whether this has been bought by the ECB or not. the ECB would have to alos montetize this "pressure" on government finances in order to relieve governments from this upcoming and unaccounted burden.

3. there is no accounting for the cost of immigration. government budgets exlcude immigrations costs from fiscal caluclations and are therefore misleading, inaccurate and, basically, lies. the future liabilities for properly taking care of three million immigrants across the EU in the ten years prior to 2015, the three million or so immigrants post 2015 (2 million to germany alone) and the 3 million immigrants still to come (family reunificatin on compassionate grounds etc pus fresh immigrants) - at 50,000 euros per annum per "head" in direct costs (housing, foood, heating, etc), plus 50,000 a year in indirect costs (policing, diverting exisitig resources, hiring resources for special language/culture needs, higher medical costs for imported diseases etc) - around 6-9 million immigrants at 100,000 each per annum = up to 900,000,000,000 - just under a trillion A YEAR.

for those three reasons alone, the structural deficit is understated, moving to 0.5% (like italy) is missing a structural deficit tht should be being acrued today - to mitigate the known liabillities - of at least a further 3% per annum. the same applies to germent, france, holland, spain, greece.

in the meanwhile, the ECB can rig the interest rate (and hence the gap between the general budget deficit and structural deficit) to be 2.5% lower than it "should" be, the ECB can also rig the structural imblances in the trade between EU countries, by guaranteeing every export from germany to spain/italy and hiding that guarantee in target II balances (here ) - germay (banks, companies and consumers) will never get back any money owed to it by Sp.ain or Italy. this is another device to "kick the can" and deny any path to correcting imbalances by simply hiding them. germany is essentially selling goods to spain/italy who will never pay for them.

there are a whole bunch of other reasons, but my time is up.

curious, are you a member of's_Party ?


amanfromMars's picture

We will present one answer - an answer which the central banks do not want to hear - shortly.

Hi, Tyler,

Does that answer mirror the unstoppable rise of almighty powers hosted and exercised by virtual blockchained bit currencies which harbour and reward leading future intellectual property exchangers at the crushing and crashing expense of petrified fiat paper mills?

And most probably an absolutely fabulous fabless weapon DARPA would like to command and control? You can be assured that they should be are aware of it for they are cited and been given AI sight of it.

What traditional conventional markets are much more vulnerable to, is migration of investment away from them to newly opened fields which present catastrophic losses to previously designated too big to fail ventures ....... and it doesn't take much to start that smarter banked money run ...... C42 Quantum Communication Control Systems .....AI@ITsWork

The difficulty and hurdle to overcome though, is that its new fangled entangling NEUKlearer HyperRadioProActive IT does neither entertain nor tolerate the dumb fool that be just a smart tool.

Arnold's picture

Let me help.
Next gen Quantum Blockchain is not for silly people.

--Your Governance

ThinkAgain's picture

Financial QE enlarges the problems within economies. Financial QE is used when real economic growth is absence. They should have chosen for stimulating real economic growth by Productive QE ( or/and by bilateral currency swaps (BCS) or/and for energy quantative easing (EQE).

Let it Go's picture

A big question is how much of this money in one way or another was used to buy stocks. One indication of just how messed up and flawed the global markets have become is reflected in the way central banks across the world are now buying stocks. This has become a part of their response to correcting the forces of past excesses.

One thing is clear, the central bank's large foray into stock ownership represents more than just a moral hazard and in many ways, it paves the path for a liquidity crisis in our future. More on this subject in the article below.

Central Banks Are Making Massive Incursion Into Stocks

hooligan2009's picture

the central premise of QE/ZIRP/NIRP is that, at the margin, economic activity can "settle" at a level that is determined, in linear, or even exponential form by varying levels of short and long term interest rates.

this is akin to saying to those already invested - "do more, irrespective of demand" or "supply anything and the demand will eventuate, regardless of utility or value".

below that, there is the encouragement for currently non-participating "idiots" to "supply anything and the demand will eventuate, regardless of utility or value".

within this inane drivel, the market players that produce something to satisfy known demand for utility and value, have to competed.

in other words, crap competes with quality.

it ought to be obvious to anyone, outside the (produce nothing, control nothing, with no accountability whatsoever) libtard socialist governments and their central bak enablers, that there has been rampant inflation in financial assets because monetary economics can only ever effect monetary instruments, not the real economy (as "measured" by bellwether indicators of unemployment, inflation and growth) because monetary policy also only impacts quantities, nt qualities.

don't foget, that in a few decades time, everyone will recognize that central bankers and these (much more cultured) people will be view in the same light - and not just by me.

Money_for_Nothing's picture

If you read Michael Pettis' books, he has shown that all a country needs to do to run a trade surplus is buy more financial products of other countries than physical products by monetary value. This article hints that that might have been the net effect of ECB bond buying.

hooligan2009's picture

buy less trade "visibles" and more "invisibles" - the key being, buy less "visibles".

this works for the traded sector, what about the "services" sector?

germans still corss over to poland for haircuts and dentists.

Ink Pusher's picture

Just the ECB dancing  The ' Bullshit Shuffle ' ...


allthegoodnamesaretaken's picture

No need to wonder, no sense speculating, the winner is the Banker King in England, more paper to buy more gold.