Sovereign bond purchases and risk sharing arrangements: Sharing: Myth and Reality of the European QE

Eddie Gerba and Corrado Macchiarelli

In March, the Eurosystem started to purchase on the secondary market euro-denominated bonds issued by governments, agencies and European institutions. The total amount of bond purchases is estimated to 1.14 trillion EUR until September 2016, or 60 billion EUR per month. The size of the Expanded Asset Purchase Program raises issues of scarcity of bonds to be purchased by the Eurosystem without inducing a fall of yields at record (negative) levels. Several sovereign bonds (Germany, France, Netherlands) already exhibit negative rates. Against this background, this paper reviews the main features of government bond markets in the Euro-area, including its size, structure, and current developments. Moreover it discusses the (potential) financial risks that the Eurosystem might be taking on its balance sheet in view of the currently low (or negative) yields and (expected) shortage in supply of sovereign bonds.

Publication number: 
SP 9