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The latest ECB data showed that purchases of German paper (Bund, agencies, and regionals) were again relatively strong in February, like for other large countries. However, the ECB is still discriminating against the smaller countries and issuers rated below AA (refer above graphs).
You don’t apply a Z-spread to toast, but it is a useful tool for pricing a bond. A bond’s yield is the annual interest it pays divided by its purchase price. When you plot yields against different maturity periods, you get a yield curve. When you compare two yield curves, you get a yield spread.
The expanded asset purchase programme (APP) includes all purchase programmes under which private sector securities and public sector securities are purchased to address the risks of a too-prolonged period of low inflation. It consists of the
- third covered bond purchase programme (CBPP3)
- asset-backed securities purchase programme (ABSPP)
- public sector purchase programme (PSPP)
- corporate sector purchase programme (CSPP)
Monthly net purchases in public and private sector securities amount to €80 billion on average (from March 2015 until March 2016 this average monthly figure was €60 billion). From April 2017 they will amount to €60 billion on average.
The average life of bonds also fell very sharply in Germany, with purchases over February a mere 4.3 years on average. At the same time, the repo inventory data showed that the Bundesbank lent out three new issues maturing in 2017, along with three new Schatz in 2018. Although average maturity fell to 7.88 years, the reference universe is much lower still, at 6.60 years.
The Bundesbank was forced to go longer last year as it couldn't buy below -40bp. But it is now correcting that with a vengeance, suggesting that that the short end will remain rich (and no particular support for 30s). That richness of Schatz should continue into quarter-end, with the Buba still only releasing paltry amounts into the repo market.
