Sovereign bond purchases and risk sharing arrangements: Implications for euro-area monetary policy

Project description and general objectives of the project

As stated by ECB President Mario Draghi at the press conference of 22 January announcing the EAPP programme, in March the Eurosystem started to purchase (on the secondary market) euro-denominated bonds issued by governments, agencies and European institutions. The size of the programme (worth about EUR 1.1 trillion until September 2016, or EUR 60 billion/month) raises the issue of the capacity of the Eurosytem to find enough sovereign bonds to be purchased without inducing a fall of yields at record levels. A large part of government securities of core euro area countries (Germany, France) already exhibit negative rates. Critics of ECB’s quantitative easing programme are concerned about the material risks of a bubble in the bond market and potential (future) costs/losses incurred by the Eurosystem.

Project aims to review the main features (size, structure, etc.) of sovereign bond markets in euro area Member States and discuss, in the relation to the EAPP programme, the financial risks the Eurosystem is potentially taking on its balance sheet in view of currently extremely low (negative) yields and possible shortage of government bonds.

Sponsor: European Parliament