Last week the ECB reported that its balance sheet Expanded by €11.26 billion to €3.249 trillion.
What is the makeup? How has that increased over time? What is the ECB doing now?
ECB Balance Sheet Expansion Since 2007
Balance Sheet Makeup Year End 2015
The above chart from Europa, anecdotes by Mish.
Adventures in QE
On March 10 2016, the ECB announced it would start buying corporate bonds.
At that time, Bloomberg reported Next Stop on ECB QE Adventure: $980 Billion Corporate Debt.
The next target for the European Central Bank’s expanding asset-purchase program: the region’s 900 billion-euro ($980 billion) corporate-bond market. “This is no doubt a credit bazooka,” said Lyndon Man, a fund manager at Invesco Ltd., which manages $737.5 billion.
Bang for the Euro
Today the Financial Times reported ECB Gets Bang for its Euro in Corporate Bond-Buying.
Prices of European corporate bonds have risen since the European Central Bank announced in March it would begin to buy them but, in what may be a sign of the effectiveness of the programme so far, the price of bonds purchased have risen further.
“It’s working even more than you would anticipate,” said Hans Lorenzen, global head of credit products strategy at Citigroup.
Shortly after it was announced, there was a rapid appreciation in the value of bonds predicted to be eligible, diverging from those judged outside the ECB’s criteria. Companies rushed to sell new bonds, including a record €13.25bn offering to fund brewer AB InBev’s takeover of rival SABMiller.
“We’ve had the risk events and the market doesn’t seem to care,” said Chris Telfer, a portfolio manager with ECM asset management. “Everything is trading like it’s being bought [by the ECB] anyway,” Mr Telfer said. “Fundamentals don’t seem to matter; I don’t know anyone who feels comfortable buying into this.”
What did the ECB Buy?
ZeroHedge provides the answer to that question in his article So What Did The ECB Buy? “In Short, Almost Everything”
We went to the undisputed master when it comes to tracking what the ECB does in the bond realm (because the ECB is not buying equities just yet), BofA’s Barnaby Martin.
Here is the big picture as revealed in his report today titled “CSPP: Buying Frenzy” – “in just over a month of the Corporate Sector Purchase Programme, the ECB have bought 458 bonds, with virtually no stone left unturned.
The best part was Martin’s answer to the key question: “So what did they buy?” His answer: “In short, almost everything.”
- Since June 8th the ECB has bought 440 corporate bonds, which is around 35% of our estimated universe. By issuer, we find that the ECB has bought bonds from 158 different corporates.
- The most popular bonds appear to be Deutsche Bahn (12 bonds bought), Telefonica (11 bonds bought), BMW (10 bonds bought), Daimler (9 bonds bought), ENI (9 bonds bought), Orange (9 bonds bought), Air Liquide (8 bonds bought), Engie (8 bonds bought), Iberdrola (8 bonds bought), Total (7 bonds bought) and Enel (7 bonds bought).
- But in relative terms, we find that the ECB has bought relatively more of Snam (7 out of 10 eligible bonds have been purchased), Deutsche Post (5 out of 8 bonds), Repsol (5 out of 8 bonds), Total (7 out of 12 bonds), Telefonica (11 out of 19 bonds), EDP (5 out of 9 bonds), RWE (5 out of 9 bonds) and Deutsche Bahn (12 out of 24 bonds).
A glance through the individual names shows that there is very little that the ECB have held back on. In particular:
- Names with “event risk” have been bought, such as VW, Glencore, EdF and Repsol.
- Plenty of BBB3 rated credits have been bought, such as RWE, Metro, EdP, Renault, A2A, Pernod and REN (55% of names purchased were BBBs). Although not every BBB was bought – note that KPN and Alstom have yet to be purchased.
- Foreign issuers have been bought due to their issuing entities being Dutch, for instance. For us, this underscores the point that we made a few months ago that CSPP is really “QE for the world”. Plenty of Swiss credits have been bought (such as Nestle, Novartis and Adecco) as have UK credits (Unilever) and US credits (Schlumberger and Bunge).
- The ECB even dipped into high-yield, buying bonds from Telecom Italia (Fitch rating of BBB-) and Lufthansa (S&P rating of BBB-).
ECB Bond Purchases by Ticker
ECB Bonds Held as Percentage of Total Bonds
What’s Next?
The Wall Street Journal reports Draghi Stops Short of Pledging Fresh Stimulus
In its ECB policy meeting today, the ECB kept rates on hold. President Mario Draghi said the “ECB will reassess in September, when it will have fresh economic forecasts that factor in the impact of Brexit”
Mr. Draghi stressed that the ECB would closely monitor developments in the economy and financial markets, and that policy makers stood ready to act again, using all their tools, to support growth and inflation.
The International Monetary Fund on Thursday issued an “urgent” call for the world’s largest economies to roll out more growth-boosting policies to avert a growing risk of a downturn in world-wide output. The fund urged central banks to “continue to use all available instruments to raise inflation, including negative interest rates.”
Many economists expect the ECB to extend its bond purchase program, known as quantitative easing, at its Sept. 8 policy meeting. The program is currently due to end in March.
“We expect a six-month extension of the QE program to be announced either in September or in December,” said Marco Valli, an economist at UniCredit in Milan.
Flexibility Exploitation
This Mario Draghi quote from today sums things up nicely: “Proper attention should be given to the evidence we’ve given in the past few months of our ability to exploit the flexibility that our [bond-purchase] program gives us.”
In essence, the ECB threatens to corner the corporate bond market if necessary to stimulate growth. As with the Fed and Bank of Japan, there is no plan to ever sell these assets.
Draghi’s plan has been such a success, the ECB keeps adding asset classes to its portfolio. What’s next?
Mike “Mish” Shedlock
Draghi also claimed a relationship between inflation increasing from -0.1% to +0.1% from the time of the commencment of the CSPP
A simple scaling of that implies that if he buys the entire corporate bond market he might get HICP inflation at 2% – bleh
ECB bank wallet photo:
http://i.imgur.com/uaRyO.jpg
http://www.e-firstaidsupplies.com/store/graphics/00000001/922-11835-072312.jpg
Does this mean more “refugees?
What’s next? Mish
Justice? A Steve-Keen-like debt jubilee? With the single asset backing the jubilee called “Force Majeure”?
With a requirement for new credit restrictions on the Eurozone banks? So the new fiat distribution need not increase total money supply if metered to just replace net credit destruction as old loans are repaid with insufficient new loans to replace them?
That is a full blown default.
Trying to put a sales spin on it, calling it a jubilee or safe space or whatever other language torture you can come up with — doesn’t even fool the drunk running the EU into the ground.
You are suggesting a formal default. Try and act like a man and call it what it is. You want to default on your promises, and you fraudulently think there won’t be any blow back from your default.
Grow up Andy
It’s worse than a default. Much worse. In all of history, the one who defaults at least has to cough back up whatever he acquired with the debt he is defaulting on. This Jubilee craziness, intends to just pay off the debt of the banksters and others who took out too much debt, using the debased savings of those who did not.
While letting the former keep all that they bought with the debt. Just debt free…. The whole ploy is so asinine and ridiculous that, given the dystopian state of The West, it will probably be enacted promptly.
Yep. Default it is or Jubilee by another name but only for big fat cat borrowers. Joe six pack need not apply. As the too big to fail debt issuers get into balance sheet trouble I see the CBs anouncing selective debt forgiveness as needed to forestall bankruptcy. Problem is this means write downs on CB balance sheet automatically transmitted to treasury as both losses and gains are remitted to treasury. Treasury then issues bonds to cover and CB monetises same. Rate of printing exactly equals rate of credit money disappearance so inflation neutral. Problem is only only TBTF get richer as they keep the hard assets they bought with their forgiven debt while aggregate demand still languishes. I think this same pattern lead up to the French Revolution. Long boiled rope and guilotines.
Here’s a better idea since it requires no new credit restrictions nor a phony asset:
1) Use ECB equity, including negative equity if necessary, to give new fiat equally to all Eurozone citizens. But do it by instalments, say 1 per month for a year. Note that central banks can function with negative equity.
2) After each instalment is distributed sell ECB assets to sterilize that instalment. Note that the additional fiat provided by the instalment should boost the prices the ECB can sell assets for and thus increase ECB equity to compensate for the fiat give-aways, perhaps not 100% but substantially.
So basically, the ECB would loose some equity but we get a citizen’s bailout with no increase in reserves.
Definitely the least bad of a bad lot of options for the EU. When the citizens wean from credit needed to subsist the banks will see their balance sheets shrink as debt is paid down and credit stops expanding. This is the dirty little secret of the bloated financial sector. Paying down debt by citizens is like sunshine to a vampire. Here in the US our financial sector sucks down 25% of all private sector profits. This is down from 40% at the crisis years. GE had to leave the shadow banking business. Jeff Immelt was sleeping in the Lincoln bedroom keeping an eye on Obama. Oh the humanity! How much does finance take from EU profits I wonder?
I live in the US too but was challenged by how a central bank could give away fiat. And the answer is: Just do it! Equity will be impacted but perhaps not as much as expected since the new fiat will tend to increase the prices a central bank could get for its assets.
And central banks can function with negative equity anyway.
Problem is only only TBTF get richer as they keep the hard assets they bought with their forgiven debt while aggregate demand still languishes. peterblogdanovich
Speaking of assets, the proper abolition of government-provided deposit insurance might require the banks to sell quite a few assets in order to obtain the new reserves needed to transfer at least some of their currently insured deposits to inherently risk-free individual citizen, their businesses, etc. accounts at the central bank.
But sell those assets to whom? Not to the central bank since a central bank should not create fiat for the private sector except as equal fiat distributions to all citizens. And that’s where the fiat needed for the proper abolition of government-provided deposit insurance would come from – equal fiat distributions to all citizens – for lending to or asset buying from the banks, if desired.
So at least some asset redistribution might result from what we should do anyway – properly abolish government-provided deposit insurance.
Thing to remember is, this is not a great way to run an economy, it’s just the probably best way to work your way out of the fubar economy we’ve created by expanding private debt way out front of GDP. Best advice is don’t do that. If you do do that there will be pain. Sorry, hence the advice to not do that. Really. Don’t expand private debt way ahead of GDP. China is about to feel the pain of not heeding that advice. We will feel that shock here like a neighbor of a guy who likes to play with fire. Actions have consequences. Who knew?
Thing to remember is, this is not a great way to run an economy, it’s just the probably best way to work your way out of the fubar economy we’ve created by expanding private debt way out front of GDP. peterblogdanovich
The root of the problem is government subsidies for private credit creation such as deposit insurance instead of inherently risk-free accounts at the central bank for all citizens, their businesses, etc., a lender of last resort and interest paying sovereign debt.
Eliminate those privileges and the ability of the usury cartel to “safely” create new deposits/liabilities shall be greatly diminished. Imagine, for example, a deprivileged bank creating a $1,000,000 loan (“loans create deposits”) and most of the deposits created thereby fleeing the uninsured banks to inherently risk-free accounts at the central bank, dragging precious reserves with them, dollar-for-dollar?
So let’s let 100% private banks with 100% voluntary depositors create all the liabilities/deposits they dare and learn that real liabilities are dangerous to create – unlike the largely sham liabilities the banks create today wrt the general population.
Wheel…..of ….. FORTUNE!
Wheel of Malinvestment.
Wheel off or tune out .
There is nothing in the ECB’s wallet. Germany no longer has the resources to bail out Europe even if Merkel could get support to do so.
The fascist EU has been exposed for what it really is.
The only question left is whether Junker will be sober enough to turn out the lights when he leaves or will some lowly Belgian janitor have to do it for him.
The fate of the EU now lies in Erdogan’s hands (even if Erdogan doesn’t want it). Draghi is just smoke and mirrors now
First off none of what is being written about at “Mishtalk” in anyway matters of you are an American citizen. And I mean ABSOLUTELY NONE.
Having said that and since any discussion that is purely academic can in fact be true then let us suppository for a minute and wanderlust “what if Germany were to Brexit?” Clearly that is the insinuation of all of these written “machinations”…that at some point in the FUTURE the entire EU is going to go “boom” and be gone…and the euro and all associated valuations to “it” will be reset to A Zero. And still people wonder why the Yen moves the way it does (usually but not always higher) and why the entire Planet keeps buying gold and silver and not equities or debt.
Its easy to make financial “things” sound a lot more complicated than in they are,
Indeed…what other purpose is there for finance? The whole thing is like watching a James Bond movie sometimes.
Since everyone knows the outcome what’s the point of any of this again?
(1) Take your own suppository, since you don’t know what one is.
https://en.wikipedia.org/wiki/Suppository
(2) Learn to write in English (US or British). At the very least, know what the words mean. You misused “wanderlust” and this is a family blog so lets not discuss what ideas you are shoving up your back end.
Most of what you wrote was gibberish. Maybe your idea makes sense in whatever your native tongue is, but after your poor translation…. it is just gibberish
Maybe this financial slight of hand is one of the reasons Trump announced a desire to have Europe pay more for military protection. Financial games often lead to infighting followed by military conflict. While the US has had no reservations picking and choosing allies in the Middle East, having to choose your “best” friend among good friends results in making enemies.
Question: Hey Central Bank: What’s in your wallet? Answer: Monopoly money. I believe we will see several sovereign defaults before the end of the decade. The problem is not liquidity, but rather solvency. Many nations are bankrupt. History repeats. Deal with it.
“You never know who’s swimming naked until the tide goes out.” – Warren Buffett
“Fiat money eventually always goes back to its intrinsic value – zero” – Voltaire
“Betting against gold is the same as betting on governments. He who bets on governments and government money bets against 6,000 years of recorded human history.” – Charles De Gaulle, Leader of the French resistance during WWII and 18th President of France
“You cannot spend your way out of recession or borrow your way out of debt.” – Daniel Hannan, Member of the European Parliament
“Gold is money, all the rest is credit” – JP Morgan testifying in Congress in 1912
You can print out a “LOCK HER UP” sign that you can fold in half to place in your rear window simply by using Word, Arial Bold at 72 points and editing it to landscape and centering it to the lower half in landscape.
$20 not required.
Question: What if corporate debt buying by the Central Bank went on for many more years, and expanded into equity buying? Finally, it all comes to a conclusion with the Central Bank owning 100% of corporate debt and 100% of equities. As to individual debt, that would be an interesting complication; though no doubt the Central Bank could also end up with a high percentage of the mortgages, car loans, student debt, credit card debt, etc. For that matter, the Central Banks could also end up with a significant precious metal horde, which no doubt would happen once all the debt and equities are retired. In fact, the Central Banks could theoretically end up owning everything considered an asset; and I expect at some point the Central Banks would go for real assets like gold and real estate when debt and equities become scarce. Given the unlimited power to print fiat money, it is not impossible; and like with condemnation of real estate property, government could easily give itself the power to force you to take the fiat currency in exchange for the assets (like with FDR’s 1933 gold confiscation).
What then would be implications of the Central Bank owning 100% of corporate debt, 100% of equities, and perhaps a significant percentage of individual debt and perhaps real assets? Since the Central Bank is not government, it would not be socialism or state-owned. Instead of nation-states or kingdoms or People’s Republics, would the new World Map or United Nations roster be a list of Central Banks? Would the Bankers (or bank owners) via the Central Banks become the World Sovereigns?
Really, a thought-experiment. But I think interesting to run this out to infinity or some conclusion. I mean the trend is in this direction, so why not extrapolate it out and see what we end up with?
So the bank has confiscated €3.249 trillion in purchasing power from hapless European voters in a way that few seem to understand.
In one years time the ECB balance sheet will be around € 4 000 bn. The Target 2 imbalance € 1 000. And EU/IMF rescue packages around € 500 bn.
So € 5 500 billion in “financial aid” for a Eurozone with a GDP of € 10 500 bn and government debt of € 9 500 bn.
Then add the other ingredients like unemployment, migration, poverty etc and you have a real problem.