More than €700m of Irish bonds bought in first month of QE

More than €700 million in Irish government bonds were bought in the first month of the European Central Bank’s quantitative easing programme, according to new figures. They show early indications that up to €13 billion in Irish bonds could be purchased under the course of the programme, due to run to September 2016, which will provide significant support to the fund raising on behalf of the exchequer by the National Treasury Management Agency (NTMA).

The ECB figures showed that euro zone central banks bought €52.5 billion in government and public sector bonds in the first month of the programme, which kicked off in early March. When other non government bonds are counted in , the total exceeds the monthly target of €60 billion, the ECB said, with the largest purchases being €11 billion in German bonds and €8.7 billion in French bonds.

Most of the national bonds are purchased by the national central banks – such as the Central Bank of Ireland,– with the rest purchased directly by the ECB.

When the quantitative easing (QE) programme was announced at the end of January, the indications – based on the Irish central bank’s size relative to the rest of the euro zone central banks – were that monthly purchases would be around €700 million.

Confirmation of this, with €721 million purchased in the first month, should support historically low bond interest rates on the Irish market. The NTMA’s next scheduled debt auction is on May 14. It has already raised €8.5 billion of the €12 billion to €15 billion in longer term funding it said it would raise this year.

Under QE, central banks do not buy debt directly from issuing agencies, instead buying it from other investors. However the significant purchases being undertaken by the authorities supports government debt market and helps keep bond prices high and thus interest rates low. The ECB has acted to try to stimulate economic activity and revive inflation to its target rate of just below 2 per cent.

Signs of revival in the euro zone economy – and doubts about the availability of bonds to buy on the market – have led to questioning of whether the programme will be completed. However with annual inflation in March at minus 0.1 per cent, the ECB is certain to push ahead for months to come.

If central bank purchases continue at the same rate until September 2016, it would involve the purchase of over €13 billion in Irish government bonds, just over 10 per cent of the €123 billion bonds now in issue.The table shows a breakdown of more than €47 billion in government and supranational bonds bought with total public sector purchases running to €52.5 billion. Total monthly purchases adding in other securities exceeded €60 billion.