Central Bank set to smooth impact of ECB bond buying restrictions

The European Central Bank will face restrictions on the amount of Irish Government bonds it can buy after its president Mario Draghi failed on Thursday to ease the terms of its huge stimulus plan – even as he extended the lifespan of the programme to the end of next year.

A spokeswoman for the Central Bank in Dublin said on Thursday evening that the institution “will manage the implementation of the purchase programmes carefully, so that the impact of the programme parameters or any changes in these parameters, would be as smooth as possible.”

Sources also said the ECB, through the Central Bank, will continue to buy Irish bonds to the end of 2017. However, the amount acquired each month is likely to drop by about 50 per cent to €400 million a month, they said.

The ECB is restricted to buying no more than 33 per cent of eligible bonds from a single state and 33 per cent of any single bond in issue in most cases.

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Many economists had predicted it would increase the share of the bonds it could buy to as much as 50 per cent. However, Mr Draghi said on Thursday that the ECB governing council had decided against making the move, citing “an increasing awareness of legal and institutional constraints”.

Earlier this week, Cantor Fitzgerald’s head of fixed income strategy in Dublin Ryan McGrath estimated that the ECB, the Central Bank, and other euro zone monetary authorities hold about €31.34 billion of eligible Irish bonds under the quantitative easing plan. That equates to 97.5 per cent of the maximum amount the ECB can buy, based on strict conditions attached to the programme.

Ease restrictions

The National Treasury Management Agency (NTMA) would be able to ease restrictions as it is expected to return to the market early next year will a multibillion euro bond sale. It can also speed up the pace at which it has been buying and cancelling bonds from the Central Bank which are linked to the bailout of the former Anglo Irish Bank, which was subsequently renamed Irish Bank Resolution Corporation.

Mr McGrath said the NTMA could sell €9 billion of new bonds in the first half of next year and buy back €2 billion of bonds from the Central Bank.

He said the ECB gave itself further wriggle room as it widened the net of bonds that it can acquire to those that mature in between one and 31 years.

A spokesman for the NTMA declined to comment.

The market interest rate, or yield, on Ireland’s benchmark 10-year bonds rose to as high as 0.93 per cent after the ECB announced the outcome of its latest monetary policy meeting on Thursday from 0.857 beforehand.