The amount of bonds eligible for the ECB to buy under its quantitative-easing programme is poised to shrink as the purchases risk pushing more yields below zero, according to Societe Generale.
The ECB, led by president Mario Draghi, began buying euro-area sovereign debt on Monday under the 19-month plan to inject €1.1tn into the region’s economy to spur growth.
While the ECB was said to have purchased debt with negative yields this week, including that of Germany and the Netherlands, its rules preclude buying securities yielding less than its deposit rate of minus 0.20%.
The move and anticipation of further bond purchases helped to push Germany’s seven-year rate below zero on Tuesday, while yields from Italy to Ireland dropped to record lows.
German notes maturing in April 2018 were no longer eligible for ECB buying on Tuesday as their yields dropped to minus 0.23%.
“It’s like the ECB is chasing its own tail,” Ciaran O’Hagan, head of European rates strategy at SocGen in Paris, said on Tuesday.
“Yesterday, the Bundesbank could have bought 2018 notes. Today it needs to go out to 2019. The universe of buyable bonds is melting like snow in the spring sun,” he said.
A nominal amount of €1.17tn in bonds, or around 25% of total eligible government securities, is yielding less than zero, according to SocGen data.
The ECB last cut its deposit rate in September.
Policymakers maintained interest rates at record lows at a meeting on March 5, holding the key refinancing rate at 0.05%.
The ECB will be able to meet its targets for buying government debt, executive board member Benoit Coeure said on Tuesday.
“While the effective supply of eligible securities is undoubtedly lower than the total amount outstanding, I do believe it will still be substantially higher than the amounts we intend to purchase.
“We may face a scarcity of bonds, but we won’t face a shortage,” Coeure said.
Coeure said the ECB and the euro-system central banks on Monday “purchased €3.2bn of public sector bonds, putting the program on track to reach a total of €60bn of public and private sector bonds in March”.
Euro-area government bonds rallied on the third day, pushing yields to record lows from Italy and Spain to Germany, Finland and Austria.
The rates on 10-year French securities dropped below 0.5% for the first time.
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