17/06/2022 15:37
The stock of Cypriot bonds held by the European Central Bank under the Asset Purchases Programme declined by €4.2 billion in the end of May, as the ECB will terminate net asset purchases on July 1 in the context its policy normalisation.
According to ECD data, net purchases of Cypriot bonds under the EPP in may declined by €247 million, as a Cypriot 7-year bond was redeemed in the beginning of the month. The weighted average maturity of the Cypriot bonds held by the ECB was 8.82 years in end-May. The Cypriot bonds are purchased by the Central Bank of Cyprus.
On June 10 the total balance of public sector bonds held by the ECB amounted to €2.58 trillion.
The ECB Governing Council said that following the end of net purchases on July 1, it “intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates and, in any case, for as long as necessary to maintain ample liquidity conditions and an appropriate monetary policy stance.”
In its June meeting, the ECB Governing Council announced it will begin hiking its policy rates by 25 basis points in July, followed by another increase in its September meeting.
Furthermore, the ECB said the Governing Council intends to reinvest the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP) until at least the end of 2024.
Meanwhile pressure on sovereign bonds in secondary markets, especially of southern EU member-states eased following an extraordinary meeting held by the ECB on Wednesday.
Italian ten-year bonds eased to 3.74% today after the rises on the previous days which saw Italian yields rising to 4.28%.
Cypriot ten-year bonds yield also eased to 3.34% earlier today, following the peak of 3.56% two days ago and 3.38 yesterday.
Following its ad-hoc meeting the ECB said the Governing Council decided that will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism, a precondition for the ECB to be able to deliver on its price stability mandate.
The Council also decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.