ECB overbuys Irish Government bonds in November

The largest overbuying of government bonds in November by the European Central Bank (ECB) was on Irish bonds, data released by the bank shows.

While the ECB overbought a number of country’s bonds, its purchase of €1.2 billion worth of Irish bonds last month represented about €400 million more than the prescribed capital keys, the structure that governs the proportion of bonds the ECB can buy from each country.

Senior fixed income strategist with Dutch bank ABN Amro, Kim Liu, wrote that an Irish Government bond redeemed in October left Irish holdings in the ECB portfolio down, which created room for the bank to buy again.

Additionally, "due to scarcity, the ECB has undershot its target for Irish bonds in the last 19 months," Mr Liu said.

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The ECB’s bond-buying programme is part of its asset purchase programme, whereby it buys a range of assets. The programme started as a result of the global financial crisis when interest rates reduced considerably to a point at which further reducing them would have no effect. Asset purchases was one of the non-standard measures the ECB turned to in order to address the risks of a period of low inflation lasting for too long.