The yield on the benchmark 10-year bond hovered around -0.03 percent mark, the yield on long-term 30-year note remained steady at 0.513 percent and the yield on short-term 2-year note rose 1/2 basis point to -0.632 percent by 09:20 GMT.
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The eurozone central bank has previously complained that its ultra-easy monetary policy had not been feeding through into the real economy, because banks are not passing the money on in loans, particularly to the small and mid-sized enterprises (SMEs) which are the region’s economic backbone.
The banks did not disclose how much of each bond they had purchased. Market purchases accounted for 96 percent of the total in June. The earliest time could be “around one to two months”. About 84 percent of the nation’s government bonds, including those that come due in as long as 10 years, have yields below zero.
Investment grade The ECB can only buy bonds that are deemed investment grade by at least one of the main ratings agencies.
The fallout from Brexit is forecast to shave gross domestic product in the euro area next year and in 2018, resulting in about 59 billion euros (S$87.7 billion) of lost output, according to economists in a Bloomberg News survey.
Cutting the deposit rate exclusively for increasing the amount of eligible bonds is unlikely, UBS’s Patel said.
It is controversial because it implies the European Central Bank holding bonds from more heavily-indebted countries. This “would dramatically increase” the pool of German bonds and “purchases of German bonds could run for another 11 months or so”, Patel said.
“Net demand for loans continued to increase across all loan categories”. “The fall in (German) Bund yields over the past quarter will make it increasingly hard to expand the QE program and stick to the rule of not buying bonds with a yield lower than the deposit rate”, wrote Karen Ward, economist at HSBC. That suggests the stock may be exhausted by November this year, at the current pace of monthly purchases, he said. That means even as Germany has a lower amount of outstanding debt compared with Italy, for example, the Bundesbank – which carries out most QE German-bond purchases for the ECB – now must buy a greater amount than the Bank of Italy, because its economy is larger. Options for a re-design of the PSPP include a change in the Capital Key requirement, a change in issue/issuer limits, a lift of maturity restrictions or allowing the purchase of bonds that yield less than the depo rate. The meeting comes a week after the Bank of England, headed by Carney, opted not to cut rates in the immediate wake of the UK’s vote to quit the European Union, instead signalling that it will probably ease in August.
“Our view is that they are still in implementation mode”, Daheim said.
The relatively upbeat survey is likely to be welcomed by the ECB, which has provided several rounds of stimulus to boost bank lending, support growth and ultimately revive inflation.
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