ECB Paper: PSPP Led to 13-Month Average Sovereign Debt Maturity Increase Among Top EMU Economies
17 May 2021
By David Barwick – FRANKFURT (Econostream) – Asset purchases under the European Central Bank’s public sector purchase programme (PSPP) led to an average maturity increase of 13 months in the sovereign debt issued by the euro area’s largest economies, according to an ECB working paper published Monday.
The working paper set out to determine whether the PSPP caused a lengthening of maturities either by its downward effect on sovereign yields or by increasing demand in relevant parts of the curve.
Under the PSPP, the Eurosystem made net purchases of nominal and inflation-linked euro area central government bonds as well as of other bonds considered euro area public sector issuance from March 2015 through 2018, following which it reinvested principal payments, only to restart net purchases in November 2019.
The working paper, which looked at the maturity of newly issued securities over a period starting six years before the PSPP began and lasting until 2019, suggested that debt management offices (DMOs) should adapt their funding behaviour to the easing of financing conditions brought about by large-scale asset purchases.
This, it said, reflected DMOs’ desire to optimise the maturity structure of outstanding debt and their ability to cover their funding needs at lower cost given compressed yields, especially at the longer end of their curve.
Beyond this direct effect of an asset purchases programme, however, a further impact ‘could arise from the higher probability that eligible securities, and in particular longer-dated securities, could be absorbed by the market, combined with the ECB’s higher price insensitivity relative to private-sector market participants’, the working paper said.
The paper estimated that for France, Germany, Italy and Spain, the reduction in yields produced by the PSPP resulted in an average lengthening of issuance maturities by seven months, while the demand effect of the purchase programme caused issuance maturities to increase by an average of six months.