ECB QE has changed this year in more ways than one

In addition to reducing the monthly pace of its asset purchases from €60bn to €30bn, in January the ECB also changed the composition of its purchases. Corporate sector debt now accounts for a larger share of the total, as we expected. This should help to keep corporate debt issuance strong, and prevent corporate bond spreads from rising significantly over the rest of the year. Meanwhile, bond purchases in Germany now account for a smaller proportion of the total than implied by the Bank’s capital key. While it is no longer buying “too much” debt in France and Italy each month, the stock of its holdings in those countries is still much higher than if it had stuck rigidly to the capital key. And given the constraints on its purchases in other countries, we doubt that this will change any time soon.