ECB Has Not Left The Room
ECB Public Sector Purchase Programme (PSPP) - Net Purchases in July (source ECB and Natixis IM)
- The market relief witnessed during the last couple of weeks has also removed pressure from European peripheral spreads. The BTP/Bund spread eased from its June’s peak above 240bp when the ECB announced the development of the Transmission Protection Tool (TPI) on 21 July. Noteworthy is that during the collapse of Draghi’s coalition in mid-July, the spread failed to hit new highs.
- A fact that is not often recalled is that the ECB continues to conduct reinvestments of the redemptions occurring on the PSPP facility within its traditional Asset Purchase Programme (APP). As a matter of fact, the ECB intends to continue these reinvestments “for an extended period of time past the date on which the Governing Council starts to raise the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions”. Looking at the maturity profile of the PSPP, EUR 258 billion are expected to be reinvested during the next 12 months – still, these are less than 30% of the sovereign monthly purchases that took place in 2021.
- Against this backdrop, although the reinvestment of redemptions under the PSPP has already been geared towards the periphery (see chart), the global normalization of monetary policy is likely to put pressure back on spreads at some point. On this regard, the TPI can be seen as the ultimate answer with which the ECB is sending clear message to the market: the entire central bank arsenal will be used to offset any threat against the Euro or the Euro Area. Next stop? Italy’s snap elections on 25 September.
The views and opinions expressed are those of Natixis IM Solutions Strategy Team at the date of publication. These are subject to change at any moment and are not an investment advice. Please see the full disclosures at the bottom of this page.
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