The ECB Made A Mistake During Its Daily Bond Purchases

Something unexpected happened when the ECB released its latest bond purchase data at during its scheduled release time on Monday: in addition to the purchase of at least 20 separate corporate bonds under the bank's CSPP bond buying program during the week ended October 14, amounting to a total of €1.84 billion, which lifted the number of securities held by the central bank to 660, bringing the total to amount of its holdings to €33.8 billion, or 7.1% of the €476 billion outstanding for these issues, the ECB actually sold one bond.

This is notable, because the first P in CSPP stands for Purchase not Punt. Nowhere is there a discussion of selling, and yet that's precisely what the ECB did - as Bloomberg noted earlier today, CUSIP FR0010955559 AKEFP 4% 10/2017 was no longer on the list of most recent ECB holdings. Why?

It turns out that in its buying frenzy, the ECB made a mistake, and according to an explanation provided by an ECB representative, the ECB had to sell a short dated Arkema bond last week it had bought some three weeks ago as it wasn’t eligible under the corporate bond buying program.

The ECB replaced the bonds, which it bought during the week ending September 23, with a longer dated Arkema issue that was eligible the representative said, the one noted below:

  • FR0012452191 AKEFP 1.50% 1/2025 700.00

In other It took the ECB almost a month to realize that not only was it not following its own guidelines, but that it had made the mistake. And, of course, there is no way to check what other errors the ECB's trading floor, as showcased by the ECB earlier this year, has made since launching its bond buying program in June.


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Meanwhile, for those curious where the ECB's bond buying program stands now, one quarter after its launch, here is a chart showing how the ECB has been extending the duration of its holdings from BofA...

... and a comprehensive summary of the program to date from UBS:

The six central banks acting on behalf of the Euro system provided an update on the list of corporate bonds they bought. No amounts were given of individual purchase bond amounts. They bought into 660 issuances with a total of €476bn in amount outstanding. For the week ending 14th October, the bond purchases stood at €1.84bn across sectors (compared to €2.24bn the week prior), bringing total CSPP holdings to €33.8bn. The complete list of ISINs can be found here. Last week, total EUR issuances worth €35bn were issued in the primary market, of which ~ €7bn were CSPP eligible. For the month ending September, total CSPP holdings stood at €29.7bn, with 89% of the purchased amount coming from the secondary market.


What bonds ECB bought into?


Looking at the break up country wise, French and German issuers continue to dominate the ISIN count (342 issuances worth €255bn in amount outstanding). Bonds from non-Eurozone corporates were also on the list, with the bulk from Switzerland (22 issuances worth €16bn). When looking at the purchases by sector, Utilities remains the top pick (176 issuances worth €116bn), while non-cyclical consumer is a distant second (100 issuances, €77bn in amount outstanding).


Mostly belly of the curve, not averse to negative yields


In terms of duration, while the ECB has bought across the curve, it has avoided going very long (12+yr). Bulk of the purchases has occurred in 3-7yrs region (293 issuances worth €209bn). By rating, it's clear that the ECB hasn't been reluctant from taking credit risk as they have bought into overall 146 BB rated and non-rated bonds. By yield, the ECB has already bought into 156 negative yielding bonds (€116bn, average yield of -0.09%). By issuer, we find that the ECB has bought into 660 bonds from 208 issuing entities. The bond with the longest maturity that was purchased was the 20 year TENN 1.875% 13/06/36 from the Tennet holding. Bonds offered by Deutsche Bahn (16 bonds bought), BMW Finance NV (15 bonds) and Eni SPA (13 bonds) lead the table of most bought.


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Corporate purchases began on 08-Jun-16, with the weekly average of ~€1.7bn per week and total corporate bond holdings of €33.8bn (as of 14-Oct-16), or roughly €7bn a month. ECB purchased bonds have returned 0.02% in Sep vs -0.26% in Aug. Month to date, ECB purchased bonds and iBoxx EUR non-financial senior index returned -0.64% and -0.68%, respectively. Currently, the Euro denominated IG corporate debt primary market seems to be on track to have its busiest year as ~€46.04bn was sold last month according to Dealogic.