Daily Insight – ECB purchases remain on track

by: Kim Liu , Maritza Cabezas

  • ECB purchases are still going strong, no signs of scarcity to be seen
  • Weak China factory activity calls for additional easing measures to stabilise economy


ECB purchases still going on strong

The ECB announced that, under the Public Sector Purchase Programme (PSPP), it bought a total of EUR 47.7bn of public sector bonds in its second month. In total, the central bank bought an amount of EUR 60.326bn, which means that it achieved its monthly target. The difference between the amount spent on PSPP bonds and the total target are purchases of ABS and Covered bonds. The average remaining maturity of the public sector bonds was 8.25 years which is marginally lower than in the previous month.

PSPP holdings are based on the ECB capital key

The data shows that the lion share of the PSPP holdings consist of German public sector bonds. Also holdings of France, Italian and Spanish debt are significant. The data confirms that PSPP purchases follow the ECB capital key.

Peripheral bond buys still have a longer maturity

The data also shows that peripheral bond buys have on average a higher remaining maturity than core bond buys. The remaining maturity of Portuguese debt is the highest of all holdings at 10.77 years. Purchases of so called core bonds of countries like Germany, Finland and most notably Holland have the lowest remaining maturity. This implies that core central banks skewed their purchases towards shorter maturing bonds. This was also the case in the first month.

China’s HSBC PMI drops in April

China’s HSBC/Markit PMI dropped below expectations in April to 48.9 from 49.2 the previous month. New orders declined at the strongest pace in a year, while production levels stagnated. The components suggest that weak domestic demand was the main driver of reduced new business, as new export work picked up a bit in April. Meanwhile the official PMI survey released on Friday was unchanged from the March reading. The official number of 50.1 was the weakest reading for the month of April since 2005. January-March data are usually distorted as a result of the Chinese New Year. The official survey suggests that new orders were unchanged and production increased slightly compared to the previous month.

Additional easing measures to stabilise economy

This slow start going into the second quarter supports the case for a new round of stimulus measures to maintain GDP growth on track. Last week, the Politburo, the Communist’s Party’s top decision-making body, said that authorities will step up policy adjustments and urged further tax cuts. We stick to our growth forecast of 7% for 2015, which is in line with the authorities’ target announced in March