The ECB’s decision last week to extend its bond-buying well into 2018 means that it will probably need to change the composition of its purchases. After all, it has already had to reduce its purchases of bonds in some countries as it is approaching its holding limits. And on our estimates, it could hit its limit for German bonds in the first half of next year.
We expect the ECB to make two key changes to the composition of its purchases in 2018. First, we think that it will achieve all of the cut in its monthly purchases to €30bn from January by reducing its public sector bond-buying. This would mean leaving its corporate purchases unchanged. Second, within its public sector purchases, we think that it will reduce the share of government debt and increase the share of supranational agency bonds.
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