Central Banks

ECB sources announce potential change in PSPP buying program

According to ECB sources, the central bank is considering giving itself extra wiggle room when rolling over its holdings of government debt next year to ensure it always find bonds to buy when the old ones mature.

The ECB will stop new bond buying at the end of the year but it reaffirmed its pledge to reinvest cash from expiring bonds for a long time. That could prove to be a problem as not every issue that matures is immediately replaced by new supply from the same country. This is particularly the case in Germany where the government runs a budget surplus and the ECB bought many short-term bonds.

As a result policy makers want to give themselves more than the current 3 months to reinvest the proceeds from maturing bonds.

The idea is currently being studied. the central bank will announce a decision at the December 13 meeting.

The public sector purchase program (PSPP) uses an ECB capital key, which dictates that government bonds should be bought in proportion to how much capital each national central bank has paid into ECB coffers.  

In April, a massive redemption of German debt resulted in the ECB purchasing more paper from Spain, Italy and France only to make up for it in May. 

It seems the ECB wants to stay true to the capital key formula by giving more time than the current 3 months to buy the bonds in those times when there is a problem. 

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