The European Central Bank (ECB) has recently decided to continue with its bond purchase programme of €60 billion at least until the end of this year. So far the ECB has already bought close to €1,800 billion of bonds.
Many market participants believe that this buying spree has kept interest rates low. But if one looks at actual interest rates one finds that they have changed very little since the ECB began to buy government bonds in early 2015. This applies also to Italian government bonds whose current yield is little changed from nearly two years ago. But many things have changed in the meantime and it is not possible to determine where rates would be today if the ECB had not engaged in its quantitative easing.
It is possible, however, to follow the money trail, i.e. to ascertain how much was bought and by whom. The first point to keep in mind is that in reality there are different bond purchase programmes. The main heading is provided by the expanded asset purchase programme (APP), which includes all purchase programmes under which private sector securities and public sector securities are purchased.
This umbrella consists of four elements:
- Covered bond purchase programme (CBPP3);
- Asset-backed securities purchase programme (ABSPP);
- Public sector purchase programme (PSPP);
- Corporate sector purchase programme (CSPP)
What is commonly thought of as QE is actually only the third element, namely the programme to buy public sector bonds, which started in March/April 2015. The figure of €60 billion, which the ECB has kept as its target purchases for the remainder of the year, refers to the total of all bonds, not just government bonds.