The ECB s Expanded Asset Purchase Programme

Transcription

1 The ECB s Expanded Asset Purchase Programme Presentation at the ICMA CBIC Conference 7 May 2015 Ulrich Bindseil Director General Market Operations European Central Bank The views expressed do not necessarily reflect those of the ECB

2 Motivation: Inflation landscape Increasing risks of failing on the price stability mandate % Source: Eurostat, ECB, Reuters, ECB computations, December 2014 Eurosystem staff projections. Notes: Boxes cover 10th-90th percentiles of historical distributions since January Inflation linked swaps are monthly averages of daily observations up until 13 February HICPex refers to HICP inflation excluding food and energy for the 6-month average and it refers to HICP inflation excluding energy for the (B)MPE values. Latest observations are January 2015 for inflation rates and 2014Q3 for GDP deflator and Compensation per employee (the value is a 2-quarter average of 2014Q2 and 2014Q3); latest projections are from the December 2014 BMPE, and survey-based (SPF) inflation expectations are from 2015Q1. 2

3 Challenge I: Impaired transmission, increasing spreads Transmission of MRO Rate Reductions to Bank Lending Rates (percent) Post-OMT Easing Cycle (July 2012 Feb 2015) Easing Cycle (Nov 2002 Nov 2003) Sources: Reuters, ECB calculations. Notes: Last observation for lending rates November 2014 (left chart), or October 2012 (right chart). The grey ranges define the 20th to 80th percentile of short-term bank lending rates for small-sized loans (< 1mln) to NFCs. 3

4 International comparison Evolution of central bank balance sheets since 2007 (Jan 2007=100) 4

5 Monetary policy milestones Monetary policy decisions on ECB standard and non-standard measures ECB cuts rates (i.a. deposit facility to %) and prolongs fixed rate full allotment beyond Dec ECB announces a series of Targeted LTROs and suspends the weekly liquidity-absorbing finetuning operation 5 June 1st TLTRO 18 September Eurosystem starts buying ABS 21 November 2015 ECB announces PSPP 22 January 3rd TLTRO 19 March May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 4 September ECB cuts rates (i.a. deposit facility to -0.20%) 20 October ECB announces ABSPP & CBPP3 Eurosystem starts buying covered bonds 11 December 2nd TLTRO 9 March Eurosystem starts buying public sector bonds Low interest rates: policy and implementation issues 5

6 The role of interest rates in monetary policy transmission Justification of low interest rate policy Lowering interest rates makes saving less attractive, induces investment and consumption. Wicksellian arbitrage logic provides basic idea: if i t < E(r t )+E(π t ) attractive to borrow money and invest in real assets =>π t if i t > E(r t )+E(π t ) attractive to sell real assets and lend money => π t Importance of expected inflation rate E(π) and real rate of return on capital (r). Low interest rates: policy and implementation issues 6

7 The role of interest rates in monetary policy transmission Justification of low interest rate policy Two further challenges: (I) (II) Term/credit/liquidity spread also affect firms funding costs, and increase in financial crisis => merits of credit easing and CBPP has elements of credit easing Zero lower bound problem => ability to exert expansionary interest rate impulses can be exhausted => need to act forcefully, and in time. Key role of unconventional monetary policies: after reaching the ZLB, compress term, liquidity and credit spreads to reduce actual funding costs of the economy, thereby contribute to make monetary policy expansionary (prevent it to be contractionary) Low interest rates: policy and implementation issues 7

8 APP CBPP3 - Objectives The objectives of the CBPP3 are to contribute to: (a) enhancing the transmission of monetary policy, (b) facilitating the credit provision to the euro area economy and as a result (c) provide further monetary policy accommodation. ECB - public 8

9 APP programme parameters Eligible Universe ABSPP CBPP3 PSPP Mon. pol eligible ABS (subject to DD assessment) Mon. pol eligible CBs for own use & multi-cedulas Mon. pol. eligible central government bonds, agencies and EU supranationals Minimum rating CQS3 CQS3 CQS3 Maturity All All 2-30 years Issue Limit 70%* 70%* / ** 25%* / ** Issuer limit No Yes** 33%** Purchases Implementation Securities Lending 1 ary & 2 ary market 4 EAMs and 1 IAM 1 ary & 2 ary market Decentralised 2 ary market (ensuring market price formation) Decentralised Yes Yes Yes * Specific conditions for programme countries apply ** Combined Eurosystem holdings from monetary policy and investment portfolios 9

10 APP monthly calibration logic Combined monthly purchases of EUR 60 bn Monthly settled purchases (at amortised cost) EURm 70,000 March 2014 EURm April ,000 60,000 60,914 60,000 60,325 50,000 47,356 50,000 47,700 40,000 40,000 30,000 30,000 20,000 20,000 12,397 11,464 10,000 10,000 1,161 1, ABSPP CBPP3 PSPP Total ABSPP CBPP3 PSPP Total PSPP size adjusts according to CBPP3 and ABSPP pace of purchases Source: ECB website, last observation: 04/04/

11 APP monthly calibration logic Combined monthly purchases of EUR 60 bn EURm 200, , , , , ,000 80,000 60,000 40,000 20,000 0 Cumulative settled purchases at end-april 2015 EUR millions (at amortised cost) 5,785 75,070 95, ,911 ABSPP CBPP3 PSPP Total PSPP size adjusts according to CBPP3 and ABSPP pace of purchases Source: ECB website, last observation: 04/05/

12 EUR bn CBPP3 Monthly progress of CBPP3 purchases so far Primary market purchases Secondary market purchases Monthly gross issuance Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 Source: ECB website for purchases (history of cumulative purchase breakdowns in book value) & Dealogic for monthly issuance (euro area euro-denominated covered bond issuance only) ECB - public 12

13 FI, 10Y, Nordea. IT, 7Y, Cr Emiliano. ES, 7Y, Sabadell. FR, 7Y, CFF. IT, 10Y, UBI Banca. ES, 10Y, Santander. ES, 20Y, Santander. FR, 10Y, BPCE. FR, 8Y, Credit Agricole. BE, 5Y, Belfius. DE, 4Y, Helaba. FI, 10Y, OP Mortgage. DE, 5Y, WL Bank. IT, 7Y, Cariparma. ES, 7Y, BBVA. FR, 10Y, CFF. DE, 4Y, LBBW. FR, 7Y, Credit Mutuel. IT, 7Y, BPEIM. DE, 15Y, WL Bank. IE, 5Y, Bank of IE. IT, 7Y, Intesa. DE, 6Y, DG Hyp. ES, 7Y, Cajamar. FR, 20Y, CAFFIL. BE, 7Y, KBC. DE, 7Y, CoBa. PT, 7Y, Caixa GD. ES, 10Y, Bankinter. IE, 7Y, AIB. AT, 10Y, Erste. FR, 10Y, BNPP. DE, 3Y, HSH. FR, 8Y, BPCE. BE, 10Y, Belfius. FR, 5Y, CFF. DE, 4Y, Nord LB. FR, 5Y, SocGen. AT, 10Y, Unicredit. AT, 10Y, RLB. IT, 7Y, BPIM. DE, 7Y, Dexia. DE, 5Y, Helaba. IT, 10Y, Unicredit. ES, 7Y, Caja Rural. FR, 7Y, HSBC. DE, 10Y, MünHyp. FI, 5Y, Nordea. FI, 12Y, Nordea. ES, 11Y, Bankia. DE, 12Y, DKB. ES, 10Y, CaixaBank. FI, 7Y, Aktia. ES, 10Y, BancoPop. DE, 12Y, WL Bank. DE, 6Y, Unicredit. DE, 7Y, Deutsche Hypo. FR, 7Y, Banque Postale. FR, 8Y, CAFFIL. NL, 7Y, NIBC. NL, 7Y, Van Lansch. BE, 6Y, KBC. DE, 7Y, BHH. IE, 7Y, Bank of IE. CBPP3 Primary issuance: Volume and bid-to-cover ratios EURm Volume issued (lhs) Bid-to-cover ratio (rhs) Times 2, /01/2015 1, , , , , Source: ECB calculations; Benchmark euro-area issuance of new covered bonds since the start of CBPP3 only; last observation: 05/05/2015 ECB - public 13

14 CBPP3 Primary issuance: Shrinking covered bond market EURbn Gross issuance Net issuance YTD Source: Dealogic & ECB calculations. Euro area euro-denominated covered bond new issuance only. Last observation: 05/05/2015 ECB - public 14

15 CBPP3 Primary issuance: Significant change in maturity structure 100% <5 years years years >10 years 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: Dealogic & ECB calculations. Euro area euro-denominated covered bond new issuance only. Last observation: 05/05/2015 ECB - public 15

16 CBPP3 Asset swap spreads: Tightening since the announcement of CBPP3 bps ES IE IT PT Start Announcement purchases CBPP3 200 CBPP Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 AT DE ES FI FR IE IT NL PT Covered EU sovereign Current spread (bps) Variation (bps) since: bps AT DE FR NL FI Announcement CBPP3 Start purchases CBPP3-25 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 01/01/ /09/ /10/ /01/ /03/ Bank senior Source: iboxx indices; last observation: 05/05/2015 ECB - public 16

17 Covered bonds in the Eurosystem collateral framework framework Covered bonds continue to be an important asset class in the marketable assets eligible for monetary policy operations and within mobilised assets. Small decline in mobilisation between 3 rd and 4 rd quarters of Not obvious to what extent this is related to CBPP3 purchases. 2014/III 2014/IV Covered bonds EUR bln % of total EUR bln % of total Eligible Mobilised (used)

18 CBPP3 Covered bonds, status reinforced in stress times i. Resiliency of asset class throughout the crisis, strengthening its status as funding tool and attracting a broader range of issuers and jurisdictions ii. iii. iv. Regulatory treatment remains favourable Positive performance in past years, contributes to stable investor class and to easier funding conditions Investor participation in primary market still comparatively large, with some new issuance premia generally observed Covered bonds remain an important funding tool for euro area issuers 18

19 CBPP3 Covered bonds continue to evolve i. Larger number of countries and legislative frameworks ii. iii. New cover pools: ship loans, aircraft loans (NordLB 07/2012), SME loans, lease & factoring receivables New (innovative) structures for publicly distributed bonds: i. SME structured covered bonds (Commerzbank, 02/2013) ii. Conditional pass-through structures: NIBC (10/2013), Unicredit (02/2015) & Van Lanschot (04/2015) Issuers Investors + Lower market risk (refinancing risk) + Higher expected return + Collateral efficiency (encumbrance) + More stable issue rating + Possibly lower funding costs/higher achievable rating + Same favourable regulatory treatment - Concerns over lower protection (lower over-collateralisation & liquidity coverage) - uncertainty on timing of repayments and hedging difficulties more diverse asset class analysis required new investment opportunities, but also deeper 19