First things first, the pace of PEPP purchases halved to €10.6bn last week, the lowest this year post Christmas break. I'm sure it's all due to Easter and that "significantly higher" purchases are just around the corner.
I mean, seriously. The ECB hasn't even started to front-load PEPP purchases in any meaningful way, and the hawks are already talking about tapering? Here's another Daft Punk reference for you: Doin' it right.
Moving on to the monthly QE data breakdown.
Big picture: ahead of the expected pick-up in PEPP purchases, it's still very much a *Public* Pandemic Emergency Purchase Programme, although corporate debt purchases have increased slightly in Feb-Mar. CP continue to roll off.
In terms of the breakdown of PEPP purchases across countries, there has been no change in composition in 6 months. The ECB is sticking to capital keys almost perfectly. The PEPP's flexibility is no longer being used.
The average maturity of German/core PEPP purchases continues to rise, but it's still below the maturity of the eligible universe (with the exception of Austria).
In terms of PEPP breakdown, note that Supranationals made up for 10.2% of total public debt purchases (€13.4bn) for four months in a row, yet not enough to compensate for a slow start in 2020 (5-7%) despite EU bonds issuance.
Moving to the APP, no big change either in terms of overall pace or composition of purchases. Deviations from capital keys were small in March, leaving the cumulative deviations broadly unchanged.
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First, ignore the noise in inflation this year due to a combination of factors (new HICP weights; imputed prices; taxes; seasonal sales). The ECB will look through this unusually high volatility, focusing on the 2022-23 outlook.
Second, the inflation outlook remains subdued due to weak demand and high uncertainty. The ECB's approach isn't *that* different from the Fed's: "the generation of sustained wage pressures requires a labour market that is sufficiently hot". #HighPressureEconomy
Big number!
425 banks took €330.5bn in ECB's TLTRO-III.7 operation, highest since June.
A positive sign for the banking sector and the real economy.
/thread
This large take-up will result in a €315bn increase in total TLTRO borrowing (to €2080bn excluding PELTROs) after €15.7bn mature from the final TLTRO-II.4 next week.
€330.5bn represents a 18% increase in total TLTRO borrowings vs. a 10% increase in borrowing capacity following the ECB decision (from 50% to 55% of eligible loans). It suggests that banks in the core have increased their borrowing more than proportionally.
Remember TLTROs?
The take-up at the 7th operation (TLTRO-III.7) will be published tomorrow at 11:30 CET. It will be the most important operation since June 2020 (when a record €1.3tn was allotted) as the ECB eased TLTRO conditions in December. (1/n)
The ECB increased TLTRO borrowing allowance from 50% to 55% of eligible loans (adding €290bn), and added three new operations between June and December 2021. Most importantly, the interest rate discount period was extended by one year, to June 2022. (2/n) ecb.europa.eu/mopo/implement…
Here’s the outstanding amounts of TLTRO borrowing by country as at end-January.
Total borrowing was €1792bn, or 56% of total allowances. Belgium (88% of allowances), Spain (74%) and Italy (73%) were among the largest TLTRO users. (3/n)
ECB QE data is out!
Bulk of PEPP still in public debt securities (93% of the €700bn so far).
A chartstorm 👇
Before we dig into monthly QE across countries and markets, last week's PEPP purchases were the largest in almost 6 months (€21.3bn).
Could be catch-up, could be that the ECB wanted to send a signal ahead of this week's meeting, but more likely front-loading before Xmas break.
ECB QE monthly data: stabilising ahead of Christmas break.
Average monthly PEPP was €66bn in Oct-Nov, of which €70bn per month in public debt (as CP holdings declined by €8bn).
The ECB's focus will be on the *duration* of policy support
more than on the *intensity* of asset purchases. The ECB could extend PEPP & TLTROs for even longer, although the consensus will have moved closer to our view by now. (2/n)
In order to extend the PEPP to June 2022, the ECB will need to increase its size by €450-850bn, so they could also surprise with a larger number (>€600bn).
We expect flexibility on both sides: the envelope might not be used in full, but they'll be ready to do more. (3/n)
A few charts from the @ecb Financial Stability Review.
1. Total net funding of euro area households, firms and sovereigns, including various EU support schemes ecb.europa.eu/pub/pdf/fsr/ec…
2. Bank loans to euro area corporates: more than 7% are affected by state guarantees, and 14% by moratoria.
3. Banks' Net Interest Income contracting due to margin compression. Overall profitability markedly lower due to loan loss provisioning too (though lower than predicted).