The European Central Bank has passed the Euro1tn mark for its controversial purchases of government bonds, putting pressure on policymakers to address the scarcity of available bonds when they meet in Frankfurt this week.
A global collapse in eurozone bond yields since Britain’s vote to exit the EU has dramatically reduced the stock of eurozone government paper standing above the yield threshold set for the ECB’s Euro1.7tn bond-buying project — raising concerns that the ECB will have to make sweeping changes to avoid running out of bonds to buy.
The bond purchases are part of a quantitative easing programme — like those of Japan and the UK — launched to fight the threat of deflation and boost the flagging eurozone economy by driving down borrowing costs for companies and lifting confidence.
In Germany, where the yield on 10-year Bunds has fallen below zero for the first time in history, bankers at Citi estimate the country’s entire government bond market will become ineligible for the ECB’s scheme by November.
There are various estimates of when the ECB will hit a wall because it does not provide exact breakdowns of the bonds it already owns — but everyone agrees that it is close to reaching its limit, said Aman Bansal, interest rate strategist at Citi.
And the bank cannot slow the pace of bond purchases without sending out a signal to the markets that something is wrong.