ECB will have 130 billion euros to reinvest over next year

FRANKFURT (Reuters) – The European Central Bank will have nearly 130 billion euros ($150.6 billion) worth of cash from maturing bonds to invest, providing a key stimulus as its new bond purchases drop, fresh data showed on Monday.

Having already bought 2.2 trillion euros worth of bonds to depress borrowing costs, the ECB has started to shift its focus from new purchases, arguing that its bloated balance sheet will provide the bulk of accommodation needed to lift inflation.

New buys will be cut in half to 30 billion euros a month from January and markets expect the ECB to end purchases by the end of the year. One reason is that finding enough bonds is becoming increasingly difficult within the legal parameters of the program, commonly known as quantitative easing.

October data released on Monday showed that purchases remained skewed towards countries such as France and Italy, with the ECB deviating from the so-called capital key, a rule that requires purchases in line with the size of each country’s economy.

Bond buys in Germany, the euro zone’s biggest economy, were about 300 million euros below the capital key. They also trailed in Portugal and dropped to zero in Ireland, where the ECB already has sizable bond holdings.

The ECB’s problem is that it cannot hold more than a third of each country’s debt, so once it reaches a the limit, it needs to redistribute purchases among countries with bigger bond markets, facing accusations that it is de facto rewarding more indebted countries.

SMALLER THAN EXPECTED

Redemptions, disclosed for the first time on Monday, will average 10.8 billion euros a month in the 12 months from November, below analyst expectations for around 15 billion euros, with big fluctuations expected between months, the data released for the first time showed.

Redemptions will peak in April, when they hit 24.3 billion euros. The lowest monthly total will be in August, when they drop to 2 billion euros, the figures showed.

The vast majority of redemptions — 101.5 billion euros — will be in the public-sector purchase program, which is dominated by government bonds. Eighteen billion euros worth of covered bonds and seven billion euros of asset-backed securities are also due to mature.

Cash maturing from government bonds will be reinvested within two months in the same country as the original bond, if market conditions allow, the ECB said earlier. The re-investments are due to continue for an extended period after new buys end.

ECB data also showed that redemptions have been relatively minor this autumn with the public-sector maturities totaling 22.7 billion euros until the end of October.

Overall redemptions in November will total 3.1 billion euros, 2.2 billion of which will come in the public sector.

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