ECB: close to, but below transparency.
A few thoughts about the disclosure of PEPP purchases, and why it matters in the context of renewed tensions in BTPs. (1/n)
A few thoughts about the disclosure of PEPP purchases, and why it matters in the context of renewed tensions in BTPs. (1/n)
Central bank transparency is like inflation in some way. We need some degree of transparency about asset purchases, but not too much, or it can become self-defeating. (2/n)
APP transparency is just fine. The ECB publishes a monthly breakdown of purchases across markets and countries (PSPP), and the weighted average maturity of national portfolios. Along with securities lending data, we get a good idea of the debt securities the ECB is buying. (3/n)
Meanwhile, PEPP is well below target. The ECB only reports weekly and monthly amounts of net purchases with no breakdown whatsoever, like they used to do under the infamous SMP programme in 2010-11. (4/n)
There is a case for the ECB to be less transparent with PEPP than with APP. The former is a temporary programme, larger, more flexible and more targeted (shorter maturities, deviations from capital keys, Greek waiver, no reinvestment, and crucially no issuer limits). (5/n)
So the hope could be that PEPP ends in Dec-20 and that holdings start to be reduced from 2021 as short bonds mature. Depending on the spreading of German PEPP purchases and debt issuance, the Bundesbank’s issuer share across all programmes could fall back below 33% by 2022. (6/n)
Either way, constructive ambiguity has its limits. We think the ECB should be more transparent and publish a PEPP breakdown across markets, at the very least: public debt, corporate debt, covered bonds and ABS. (7/n)
The publication of PEPP purchases across countries would be more problematic if/when combined APP+PEPP holdings exceed 33% in some countries, but there are alternative options. The ECB could decide not to publish the weighted average maturity of its PEPP portfolios. (8/n)
In that case, the share of bills in PEPP holdings would remain unknown, hence the exact issuer share could only be estimated with some uncertainty given that the 33% limit is applied to the universe of eligible assets with 1-30Y residual maturity, and bill are excluded. (9/n)
Last but not least, we can estimate PEPP purchases by country using national central banks’ balance sheets (see @GeneralTheorist's post). It’s complicated and far from perfect, but offers a reasonable guide. (10/n)
In the case of Italy, PEPP purchases would amount to €4.4bn in March, or 28% of the total (€15.4bn). Italy’s 28% share in the PEPP would be lower than in the APP (35%), but well above the country’s capital key in both cases (17%), and probably understated somewhat. (11/n)
In the end, we *know* that the ECB deviated massively from capital keys in March, especially in Italy. Why would they want to hide it? The lack of transparency may only fuel conspiracy theories and add fuel to the populists' fire. (12/n)
The ECB is doing what is needed to support all members states facing the most severe economic shock in decades, and it should not shy away from proving it.
Ultimately, the ball is in the governments’ camp anyway.
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Ultimately, the ball is in the governments’ camp anyway.
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