ECB asset purchase review part 1 – Asymmetric purchase with duration

European Central Bank (ECB) started its purchasing program just a month back on 9^th March 2015. Targeted asset purchase stands at € 60 billion per month.

Now there are three programs in place PSPP (Public Sector Purchase Program), ABSPP (Asset Backed Securities Purchase Program) and CBPP3 (Covered Bond Purchase Program).

• ECB as of April 3^rd purchased € 52.522 billion under PSPP, € 4.888 billion under ABSPP and € 64.67 billion under CBPP3. PSPP will soon outshine the other two.

So far purchase assets under PSPP shows asymmetric pattern in purchase in line with key capital ratio.

Purchase by country is shown in the figure under PSPP program along with average maturity/duration. A table is presented below for reference.

ECB bond purchase continue to remain influenced by availability, market liquidity and more by negative yield on securities.

• Yields across the curve are closing on negative zone and ECB has still a long way to go.

• German 1 year yield is at -0.24%, 2 year at -0.27%, 3 year at -0.245%, 4 year at 0.20%. All out of the scope of purchase as ECB won't be buying at yields below the deposit rate, which as of now stands at -0.20%.

• German 10 year yield is now at record low -0.147%. Bundesbank's headache will go up, should it fall below negative.

These developments make ECB's reaction at the next meeting after purchase becomes vital to watch out for, which is going to be held on 15^th of April 2015 in Frankfurt.

Euro will continue to remain pushed back against dollar with falling yields and policy divergence. Euro is trading at 1.062, down -0.45% today.