One month ago, when looking at the sudden change in ECB bond purchasing patterns, especially of German Bunds, we reported that the central bank may have as little as 4 months of space left in its PSPP program when it comes to German bond purchases. The first thing that caught our eye was that based on calculations from ABN Amro’s Kim Liu, the ECB bought roughly 400 million fewer bonds in Germany in April than its rules allow, suggesting a severe scarcity of eligible bonds.
“It was by far the largest deviation, at least for Germany, and for me suggests that on top of the political stress and smoothing of purchases, there are scarcity constraints for the Bundesbank,” said Pictet’s senior economist Frederik Ducrozet. “What it means is that the ECB has to be very cautious with its exit and if they don’t taper within less than six months (of ending the programme) something might have to give.”
In addition to the sharp drop in nominal purchases, the ECB data also revealed that in just six months the average maturity of monthly German debt purchases by the ECB has dropped to under five years from more than 10.
This post was published at Zero Hedge on Jun 6, 2017.