Updated on 9 August 2023
On 15 June 2023 the Governing Council announced that it will discontinue reinvestments under the asset purchase programmes (APP) as of July 2023.
In line with the ECB’s monetary policy strategy review, while the primary monetary policy instrument is the set of ECB policy rates, the Governing Council, in recognition of the effective lower bound on policy rates, will also employ forward guidance, asset purchases and longer-term refinancing operations, as appropriate. Therefore, asset purchase programmes are now part of the ECB’s set of instruments for steering its monetary policy to ensure that inflation stabilises at its 2% target in the medium term.
Going forward, the APP portfolio is expected to decrease as assets reach maturity, unless the Governing Council decides, as appropriate, to use this instrument to steer the ECB’s monetary policy.
Reinvestments and net purchases
Q1.1 What were the monthly purchase amounts under the asset purchase programme?
Between October 2014 and June 2023 the Eurosystem purchased securities under its asset purchase programme (APP), which includes the public sector purchase programme (PSPP). Overall net APP asset purchases and reinvestments took place as follows:
- €60 billion of net purchases from March 2015 to March 2016;
- €80 billion of net purchases from April 2016 to March 2017;
- €60 billion of net purchases from April to December 2017;
- €30 billion of net purchases from January to September 2018;
- €15 billion of net purchases from October to December 2018;
- no net purchases, only reinvestments of redemptions, from January to October 2019;
- €20 billion of net purchases from November 2019 to March 2022 (a temporary €120 billion envelope of net asset purchases was added from March to December 2020);
- €40 billion of net purchases in April 2022;
- €30 billion of net purchases in May 2022;
- €20 billion of net purchases in June 2022;
- no net purchases, but full reinvestments of redemptions between July 2022 and February 2023;
- no net purchases and only partial reinvestments of redemptions between March 2023 and June 2023;
- no reinvestments of redemptions as of July 2023.
The Governing Council decided to discontinue net asset purchases under the APP as of 1 July 2022. Full reinvestments of the principal payments from maturing securities purchased under the programmes continued until the end of February 2023. From the beginning of March 2023 the APP portfolio declined at a measured and predictable pace, as the Eurosystem did not reinvest all of the principal payments from maturing securities. The decline amounted to €15 billion per month on average until the end of June 2023. On 4 May 2023 the Governing Council announced that it expected to discontinue reinvestments under the APP as of July 2023. On 15 June 2023 the Governing Council confirmed that it would discontinue reinvestments under the APP as of July 2023.
Q1.2 During the phase of partial reinvestments, what was being reinvested in the reinvestment component of purchases under the APP?
During the partial reinvestment phase, redemptions were reinvested in the same asset class in which principal repayments were made. Any coupons or interest payments were not reinvested. For redemptions of bonds issued by EU supranational institutions, reinvestments could be conducted across eligible EU supranational issuers.
Q1.3 How were PSPP redemptions reinvested?
Redemptions were reinvested in the jurisdiction in which principal repayments were made. As of January 2019 the reinvestments were distributed over time to allow for a regular and balanced market and to avoid temporary market dominance. During the phase of partial reinvestments between March 2023 and June 2023, a similar approach was followed, with the remaining reinvestment amounts allocated proportionally to the share of redemptions of each jurisdiction and across national and supranational issuers.
During the phase of full reinvestments, the EU supranational securities were reinvested in the month they fell due on a best effort basis. However, this may have been done in the preceding or following month, if warranted by market liquidity conditions.
Q1.4 How will capital key deviations develop during the run-off of the PSPP?
The ECB’s capital key provides a straightforward and stable guideline for the composition of purchases across jurisdictions. Until the start of the partial run-off phase, the Eurosystem has gradually guided its monthly purchase allocation to align a jurisdiction’s share in the stock of PSPP purchases as closely as possible with the respective share of the ECB’s capital key. As the stock of PSPP gradually declines, developments in stocks by jurisdictions are driven by the timing of redemptions. This could temporarily increase deviations, but these are currently foreseen to remain around the current level or lower.
Q1.5 Why were there substantial temporary deviations from the ECB’s capital key in the PSPP monthly net purchases in certain months?
The monthly net purchase figures for individual jurisdictions were driven primarily by the PSPP reinvestment modalities. Reinvestments of principal redemptions in a jurisdiction were distributed over time to allow for a regular and balanced market presence. This distribution mechanism led to differences in the timing of reinvestments and redemptions at the level of the individual jurisdiction. These differences were also reflected in temporary upward or downward deviations of monthly net purchases from the ECB’s capital key. However, over the course of time these monthly deviations largely cancelled each other out.
Q1.6 Did national central banks (NCBs) only buy their own sovereign bonds or could purchases vary?
NCBs bought only their respective sovereign bonds and not those of other jurisdictions. Some NCBs conducted purchases of EU supranational bonds to meet the 10% purchase share for these securities.
Q1.7 Which NCBs bought EU supranational securities?
On 24 October 2019 the Governing Council decided that purchases of marketable debt securities issued by international organisations and multilateral development banks would be conducted by fewer NCBs to simplify implementation and protect market functioning.
The following NCBs conducted purchases of EU supranational bonds to meet the 10% purchase share:
- Eesti Pank
- Bank of Greece
- Banco de España
- Banque de France
- Latvijas Banka
- Národná banka Slovenska
In addition, the Banque centrale du Luxembourg reinvested its redemptions of EU supranational bonds.
Q1.8 During the phase of net asset purchases how did you allocate the PSPP monthly net purchases across jurisdictions?
PSPP purchases were guided by the ECB’s capital key on a stock basis over the life of the programme. In order to implement the allocation, the Eurosystem guided its monthly purchases to align a jurisdiction’s share in the PSPP stock over the medium term as closely as possible with the respective share of the ECB’s capital key.
Monthly fluctuations largely reflected the variability in the redemption and reinvestment profiles, as well as market liquidity conditions experienced during the purchasing month. They did not therefore necessarily reflect persistent adjustments to an individual jurisdiction’s share in net purchase amounts.
Eligibility criteria
Q2.1 What exactly does the 1 to 30-year maturity restriction mean?
The maturity restriction means that the Eurosystem only bought securities which, at the time of purchase, had a minimum remaining maturity of 1 year (i.e. purchases of securities with a remaining maturity of 364 days are NOT possible) and a maximum remaining maturity of less than 31 years (i.e. purchases of securities with a remaining maturity of 30 years and 364 days are possible).
Q2.2 When was it decided to include regional and local bonds in the PSPP?
On 3 December 2015 the Governing Council decided that euro-denominated marketable debt instruments issued by regional and local governments located in the euro area would become eligible for regular PSPP purchases. This decision referred only to those regional and local bonds that meet all other eligibility criteria, in particular the minimum rating requirement as stated in Decision (EU) 2015/774. Regional and local bonds were only purchased by the NCBs of the jurisdiction in which the issuing entity is located.
Q2.3 What are the criteria for securities issued by agencies located in the euro area to be eligible for purchase under the PSPP?
The criteria used for recognised agencies in the collateral framework and agencies eligible for the PSPP have been aligned since the publication of Guideline ECB/2019/11 amending Guideline 2015/510. Since 5 August 2019 the agencies eligible for the PSPP are listed in the harmonised list of recognised agencies.
Q2.4 Are STRIPS eligible under the PSPP? Why does the Eurosystem adjust PSPP net purchases for redemptions of coupon STRIPS?
While Separate Trading of Registered Interest and Principal Securities (STRIPS) are eligible for the PSPP in theory, the Eurosystem refrained from buying them in the market for operational reasons. Stripping operations by other bond holders impacts the usage of issue limits of PSPP-eligible securities by the Eurosystem. In order to avoid a situation where bond stripping operations by other bond holders may have resulted in a limit being exceeded (which could lead to potential sales by the Eurosystem), the Eurosystem decided in the past to conduct a few counterbalancing stripping operations.
While coupon STRIPS repayments are technically redemptions of securities, they are economically coupon payments. The Eurosystem chose the general approach not to reinvest coupon payments and therefore did not reinvest coupon STRIPS (while maturing principal STRIPS are effectively reinvested). Maturing coupon STRIPS are therefore removed from PSPP redemptions as part of the computation of data published on the APP website.
Implementation of purchases and on holdings
3.1 Allocation of purchases
Q3.1.1 When the programme was announced, the ECB said that the purchases would be divided between countries on the basis of the ECB’s capital key. Were the weightings applied on a monthly basis, with each NCB buying the proportionate amount each month, or do these shares refer to the programme as a whole?
The ECB’s capital key guided purchases under the PSPP on a monthly basis. However, this did not imply that precise achievement of the capital key shares every month, as flexibility on a monthly basis supported the smooth implementation of the programme.
Moreover, the timing of a jurisdiction’s reinvestment of principal redemptions, and the possibility to distribute these reinvestments over time, may have affected the jurisdiction’s share in the monthly purchase volume and, inversely, the shares of other jurisdictions.
Redemptions were reinvested in the jurisdiction in which principal repayments were made, while the portfolio allocation across jurisdictions continued to be adjusted with a view to bringing the share of the PSPP portfolio into closer alignment with the respective NCB’s subscription to the ECB’s capital key, subject to issue and issuer limits, the principle of market neutrality, and other programme constraints.
Q3.1.2 During the net purchase and reinvestment phases, did the Governing Council decide each month on the exact composition of the asset purchases to be made and instruct the NCBs to carry out these purchases, or did the NCBs have a degree of flexibility?
The flexibility was granted to NCBs and this flexibility was regularly assessed by the Governing Council, which could adjust the implementation framework in this regard on the basis of the experience gained.
Q3.1.3 How did the NCBs allocate purchases between agency, regional and sovereign securities per jurisdiction?
During the net purchase and reinvestment phases, spreading purchases flexibly across the different asset classes included in the programme helped preserve market neutrality.
Flexibility in the day-to-day selection of securities that were purchased in a jurisdiction was aimed at preserving market liquidity. The Eurosystem actively incorporated the offers from a broad range of counterparties in the daily bond selection. In addition, significant efforts were undertaken to avoid buying securities that were scarce, as measured by metrics such as relative value indicators, pricing in the repo market and trading volumes.
Q3.1.4 How did you coordinate the purchases between the NCBs?
PSPP purchases were conducted by the entire Eurosystem and the ECB coordinated all asset purchases within the Eurosystem.
The ECB did not purchase debt securities issued by EU supranational institutions and did not buy regional and local government bonds. These were only purchased by NCBs.
Q3.1.5 Why was the share of EU supranational bond purchases within the monthly PSPP purchases lowered from 12% to 10% in April 2016?
A reduction of the share of purchases of bonds issued by EU supranational institutions supports the continued smooth and market-neutral implementation of the PSPP in view of the outstanding eligible securities and applicable limits under the programme.
As risk sharing within the PSPP applies to purchases of supranational bonds and purchases conducted by the ECB, the reduction in the share of EU supranational bonds was accompanied by an increase in the share of purchases conducted by the ECB from 8% to 10% of monthly PSPP purchases. The risk-shared part of the PSPP therefore remained unchanged at 20%.
Q3.1.6 During the net purchase and reinvestment phases, was there a maturity target for gross purchases?
There was no maturity target for purchases. The purchases were conducted in a flexible manner across all eligible maturities in order to ensure market neutrality.
Q3.1.7 How did you weigh different maturity buckets for your purchases?
The goal was market neutrality. The Eurosystem wanted to create as little distortion as possible. At the same time, flexibility was applied, including to take into account the relative values of bonds and the liquidity of the different maturity segments.
3.2 Purchases below the deposit facility rate
Q3.2.1 Did purchases below the deposit facility rate continue during the reinvestment phase? What was the precise meaning of the expression “to the extent necessary” when referring to PSPP purchases at yields below the deposit facility rate?
Purchases of securities with a yield to maturity below the interest rate on the ECB’s deposit facility continued to be undertaken to the extent necessary after the end of net purchases and until the end of the reinvestment phase.
For each jurisdiction, priority was given to purchases of assets with yields above the deposit facility rate (DFR). This meant that some jurisdictions with eligible assets with yields below the DFR may have required purchases at yields below the DFR and others may have not, depending on the amount of assets with yields above the DFR available to fulfil the total PSPP volume for the jurisdiction in question. This amount may have also changed over time, reflecting changes in market interest rates relative to the DFR.
In practice, the following procedure applied. First, the purchase amounts that would have emerged for each country from the application of the ECB’s capital key were determined (due to the PSPP programme constraints, this process resulted in a reallocation of purchases across countries and the use of substitute purchases made since the beginning of the PSPP). Second, the minimum amount of bonds that needed to be purchased at yields below the DFR in order to achieve the required purchase amounts was determined for each jurisdiction. In this way, the approach minimised purchases of bonds with yields below the DFR within each jurisdiction.
Q3.2.2 Why did you make purchases at yields below the DFR while you still had other bonds available?
During the reinvestment phase, the Eurosystem could estimate, with a reasonable degree of certainty, the necessary extent of purchases at yields below the DFR on the basis of market conditions. The need to preserve smooth market functioning called for the necessary amount of purchases at yields below the DFR to be distributed over time, rather than abruptly changing the sectors of the yield curve where PSPP purchases took place.
Q3.2.3 Did purchases at yields below the DFR impose losses on NCBs?
Our mandate is to pursue price stability, not to maximise central bank profits. While purchases of bonds with yields below the DFR result in interest expenses, this effect is limited. Moreover, purchases at yields below the DFR were only made to the extent necessary and generally represented only a small proportion of Eurosystem purchases. The impact of such purchases on the profit and loss account is also limited by the relatively short maturity of such bonds.
3.3 Other general implementation issues
Q3.3.1 How can I see how much the Eurosystem purchased each month under the expanded asset purchase programme?
Each month the ECB publishes both the monthly net purchases and the total holdings for the ABSPP, CBPP3, CSPP and PSPP, allowing the public to see the amounts purchased under each constituent programme of the APP.
Net purchases under the APP are calculated at book value and do not include the amortisation, which may increase (or decrease) the value of the holdings over time. The amortisation occurs on a quarterly basis and emerges from an accounting principle that implies that securities purchased at prices below face value have to be revalued upwards over time towards maturity, while securities purchased at prices above face value will be revalued downwards over time. The amortisation does not alter the liquidity injected into the banking system through the purchases under the APP.
Figures included in the tables on the public website, along with the historical time series available in .csv files, include the net purchases, quarter-end amortisation adjustments when applicable, and the value of the holdings (which includes the amortisation effect).
Q3.3.2 Did the Eurosystem buy government, agency or supranational bonds in the primary market?
The Eurosystem has never conducted any primary market purchases under the PSPP, regardless of the type of security, as such purchases are not allowed under Article 123 of the Treaty on the Functioning of the European Union.
Q3.3.3 Can the Eurosystem sell securities purchased under the APP?
Sales of securities purchased under the APP are not expected to occur regularly, although there are no formal (e.g. accounting) constraints that would preclude securities from being sold. Indeed, adjustments to holdings of individual securities purchased under the APP may occur from time to time if needed for technical reasons (e.g. to ensure continued compliance within the limit framework). During the reinvestment phase, such sales would be offset by additional purchases. In the case of the PSPP, these additional purchases were in the same jurisdiction.
Q3.3.4 How is the remaining weighted average maturity of PSPP holdings calculated? What affects the remaining weighted average maturity of individual NCBs’ PSPP portfolios?
The remaining weighted average maturity (WAM) of PSPP holdings is calculated on a monthly basis and is published alongside the monthly net purchases and the total holdings for the ABSPP, CBPP3, CSPP and PSPP. The remaining WAM is calculated by weighting the current nominal outstanding amounts of PSPP holdings by the remaining maturity of these respective holdings.
Q3.3.5 What was the duration of purchases and how will duration be weighted?
There was never a duration target for the programme.
Q3.3.6 What is meant by “other counterparties used by the Eurosystem for the investment of its euro-denominated portfolios”?
The purchases were conducted by the ECB and the NCBs with eligible counterparties, including counterparties with whom the Eurosystem trades in the context of non-monetary policy investment activities.
Q3.3.7 During the net purchase and reinvestment phases, could asset managers and non-bank financial institutions offer assets eligible for purchases under the APP and the PEPP?
Asset managers and non-bank financial institutions are not eligible counterparties. However, the Eurosystem offered its eligible counterparties the possibility to share offers of eligible securities on behalf of non-eligible counterparties, such as asset managers and non-bank financial institutions, under the APP and the PEPP. Although final responsibility for the offered assets remained entirely with the eligible counterparties, they can include them in the daily inventories of assets that they share with the Eurosystem, either by explicitly reporting which assets are offered on behalf of non-eligible counterparties or aggregating them with their inventories. In phases of heightened investor uncertainty, such as during the coronavirus pandemic, this option could contribute to alleviating market tensions and supporting proper market functioning.
Q3.3.8 My internal compliance unit asks what kind of information on the Eurosystem’s PSPP transactions the Eurosystem would give us permission to disclose to third parties? For example, would a statement such as this be acceptable “We had seen decent buying by the Eurosystem of five to seven-year Italian government bonds in bigger clips, which tightened spreads by 2 basis points”? (We would never specify an individual Eurosystem member, i.e. we would use the more general term “Eurosystem”.)
In this specific case we would agree that, for the PSPP, counterparties could indeed communicate to third parties that the Eurosystem had been buying in a certain market and maturity bucket. However, our counterparties shall not disclose the amounts transacted, the individual securities involved, or which Eurosystem member was buying. Particular care has to be taken for issuers with relatively few outstanding issues, where substantially broader maturity ranges have to be chosen.
Limits and risks
Q4.1 How high are the issue share limit and the issuer limit? Do the limits include bonds purchased under the Securities Markets Programme and under the Eurosystem’s own (i.e. non-monetary policy) portfolios? Regarding the issuer limit, is the denominator the whole debt or just the debt with a maturity of 1 to 30 years?
At the start of the PSPP, the issue share limit was set at 25%, to be reviewed after six months (Article5(1) of the Decision of 4 March 2015 states that “the limit will initially be set at 25% for the first six months of purchases and subsequently reviewed by the Governing Council”).
On 3 September 2015 the Governing Council decided to increase it to 33% subject to a case-by-case verification that this would not create a situation whereby the Eurosystem would have a blocking minority for the purposes of collective action clauses, in which case the issue share limit would remain at 25%.
The issue share limit refers to the maximum share of a single PSPP-eligible security that the Eurosystem is prepared to hold.
The issuer limit refers to the maximum share of an issuer’s outstanding securities that the ECB is prepared to buy. The issuer limit of 33% is a means to safeguard market functioning and price formation as well as to mitigate the risk of the ECB becoming a dominant creditor of euro area governments. To this end, the 33% limit is applied to the universe of eligible assets in the 1 to 30-year range of residual maturity. Both limits also cover existing Eurosystem holdings of PSPP-eligible bonds in the context of the Securities Markets Programme and any other portfolios owned by Eurosystem central banks.
Q4.2 Are the issue share and issuer limits based on nominal or market value?
These limits are based on nominal values.
Q4.3 Why have the issuer and issue share limit for EU supranational bonds been increased from 33% to 50%?
Increasing the issuer and issue share limit for EU supranational bonds provided additional flexibility in the implementation of the PSPP.
Q4.4 To which entities do the 50% issuer and issue share limit apply?
The 50% issuer and issue share limit apply to entities listed as “international or supranational institutions located in the euro area”. See information on the PSPP. Note that this list does not include eligible agencies located in the euro area.