Figure 1: The ECB Steps Up
The purchases have come alongside some easing back in bond yields and spreads but this correlation is hardly a clear causation as the change in tone in bonds may be more due to fresh COVID worries than ECB action: more data is needed.
This planned speeding up of PEPP purchases may be as much linked to the ECB’s bank lending worries as to the rise in bond yields. In the meantime, the very pertinent question is whether the ECB will actually be able to address what it may regard as anomalies in and across the whole EZ yield curve(s) as easily as it managed to narrow BTP spreads last spring – NB bought BTPs over capital key. We have our doubts!
Regardless, exactly what PEPP purchases at a faster pace will actually entail over time is hard to gauge at this juncture, even for the ECB. It will depend on market reaction but the ECB will also have to take into account the purchases needed for reinvesting maturing bonds, which are sizable in the next few weeks through April, this also being the case for the APP. But trying to gauge the market impact will be difficult depending upon what the ECB is actually aiming for. In this regard it is notable that President Christine Lagarde formally rebuffed any idea of the ECB attempting yield curve control; this is, of course, understandable in the ECB context as it is not sure which of the varying national yield curves it needs to address.