The European Central Bank (ECB) was said to start buying eurozone government bonds, as it took the first step of its expanded quantitative-easing (QE) plan designed to boost price growth in the region.
Central banks from the region bought German bonds, said two traders in government debt, who asked not to be identified because the transactions are confidential. Sovereign securities across the region advanced. The Bundesbank could not immediately be reached for comment.
Anticipation of the 1.1 trillion euro (US$1.2 trillion) plan already fueled a debt market rally that sent yields in the 19-nation currency bloc to record lows, while helping push the euro to its weakest level in more than 11 years and send the Stoxx Europe 600 Index to the highest since 2007. ECB President Mario Draghi last week said that the stimulus will spur the eurozone’s fastest economic growth in seven years and help return inflation to the ECB’s goal.
Speculation over the impact of the quantitative easing program has dominated trading of eurozone bonds since it was announced in January. Some holders of government securities have indicated an unwillingness to sell, sparking concern that there will be a scarcity of available debt for the ECB to buy, adding momentum to the rally. There is also a risk that flexibility and limited information on the plan stirs market volatility.
The ECB last week said that the purchases, which are to include public and private debt, will be conducted in the secondary market by national central banks via existing counterparties. That is in contrast to the US Federal Reserve’s approach, which involved a calendar telling dealers what it intended to acquire and when.
While the ECB said that only securities due between a minimum of two years and a maximum of 30 years and 364 days at the time of purchase will be eligible, national central banks will have some wiggle room as they carry out purchases within their home markets, allowing them some choice between government and agency debt.
Purchases of bonds will be made roughly in proportion to the capital that each member central bank has contributed to the ECB, though that guideline does not have to be strictly followed every month. There is also flexibility on what maturity of bonds would be bought by the central banks to reach the target of 60 billion euros a month.
About 45 billion euros per month is likely to be spent on sovereign debt, a central bank official said on Jan. 22. That implies an intention to purchase 14 percent of eurozone government bonds outstanding by September next year, or 18 percent of securities from Finland, Germany, Luxembourg and the Netherlands, the only nations with two or more AAA ratings from the three major credit-assessment companies.
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