This month sees the launch of the ECB´s QE programme, a commitment by the central bank to purchase €1 trillion in sovereign bonds until September 2016. There has been much speculation about the impact that the programme will have, and fresh concerns have emerged about the ECB´s ability to reach its targeted purchases of €60 billion per month.
Specifically, some market watchers have questioned how the ECB will entice domestic banks into selling sovereign bonds when interest rates are currently in negative territory.
Vice president Vitor Constancio played down such fears:
“We don´t anticipate any such problems,” adding that there were €4 trillion worth of bonds available for purchase.
Up to 70% of sovereign bonds worth €7.55 trillion are owned by domestic investors in the EU. Banks across the EU make up 25% of that trench- 47% in the case of the Spanish banking sector- with pension funds and insurers owning 22% and foreign central banks making up 20%.
The issue of risk sharing has been a contentious one in the run up to QE, with national central banks set to take on 80% of the burden in the event of losses. The ECB will make up the other 20%.
European banks have been keen to stock up on government debt as they bid to boost capital ratios ahead of the implementation of Basel III. With current yields on government debt standing at such low levels, some analysts believe that the ECB programme could be beset by a lack of interest on behalf of lenders.
The ECB plans have already had the effect of pushing national bond yields to record lows, with Spanish 10-year bond yields currently standing at 1.24%.