ECB prints money at record pace amid bank bonds bonanza

The European Central Bank bought a record-breaking €24.7 billion worth of debt last week, taking advantage of a bumper supply of bank bonds to boost its economic stimulus programme.

Last week’s figure is the highest since the ECB started flooding the euro zone with cash in 2014, in a bid to revive inflation and growth by lowering the cost of borrowing.

The jump in purchases, which partly compensates for thin ECB buying in December, was partly driven by covered bonds, a form of bank debt backed by mortgages or public-sector loans.

Central bank sources said the ECB was taking advantage of ample supply of these bonds, which lenders tend to issue at the start of the year, before they release results and when buyers are flush with cash.

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"There is a very simple reason: there are finally enough bonds in the market for the ECB to buy ... the scheme relies on activity in the primary market," said Guenther Scheppler, a senior covered bond strategist at DZ Bank.

About €13 billion worth of corporate bonds were issued last week, compared to just €500 million in the last week of December, according to data by IFR, a Thomson Reuters market information service.

Quantitative easing

Launched in October 2014, the covered-bond purchase programme was the ECB’s first attempt at quantitative easing.

As it failed to spur lending or inflation, it was soon followed by purchases of government bonds, which now form the bulk of the €80 billion worth of debt the ECB buys every month, and later by corporate debt.

With banks now drowning in excess cash and the ECB already owning a significant chunk of the covered bond market, ECB purchases of this form of debt have long been declining.

"It's a one-off, in my view," Frederik Ducrozet, an economist at Pictet Wealth Management, said. "I expect the declining trend to continue."

Reuters