ECB tapering on the sly

A reduction in the amount of bonds being purchased in the ECB’s ABS Purchase Programme shows that the ECB has been on a path to tapering in the asset class, even before it has been officially announced.

  • By Sam Kerr
  • 22 Aug 2017
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The ECB now owns less than €25bn of ABS paper — €24.6bn as of July to be precise. Since the programme was introduced in 2015, yearly purchases have been €13.6bn, €7.5bn in 2016 and €1.9bn to date this year.

As Twenty Four Asset Management’s Aza Teeuwen wrote in a note on Tuesday the reduction in the ABSPP almost looks like the ECB has already begun to taper.

A subtle reduction in ABS buying before any official announcement on the end of tapering certainly makes sense from the ECB's perspective

As a product ABS has never seemingly sat easily with European officials, given its role in the financial crisis and European regulators' preference for covered bonds rather than ABS. Though the asset class features extensively as repo collateral for the central bank, owning large volumes of ABS outright was unlikely to ever have been part of the ECB’s long term strategy.

It also is an asset class where there has been little need for ECB participation.

Liquidity programmes in general have constrained public ABS supply, with euro-area bank financing largely covered by TLTRO, or dedicated to meeting MREL rules, meaning there is little need to offer securitized paper to investors.

The lack of new supply has ensured high levels of demand for the few ABS deals which have been issued this year given investors have far fewer opportunities to buy than in the past.

In ECB-eligible ABS transactions the central bank has often been a peripheral investor in 2017, with a large number of German auto deals for example sold to bank treasuries and asset managers in preference to central banks.

Even without large scale direct ECB participation the market has prospered, with spreads hitting post-crisis tights in a number of European asset classes.

So if the ECB has indeed been using the scaling back of the ABSPP as a test case for tapering on the sly, (and that is a very big if) then it should conclude the market is perfectly functional without its participation as a buyer. In the months ahead, the ECB could very feasibly move from the stance of reduced participation in ABS markets to openly not reinvesting in securitized paper once it rolls off.

With Mario Draghi jetting off to Jackson Hole this week, ECB officials should keep the health of the European ABS market without so much ECB help on their minds and indicate more firmly that the central bank intends to start tapering officially. 

  • By Sam Kerr
  • 22 Aug 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 315,565.94 1183 8.89%
2 JPMorgan 288,650.70 1316 8.13%
3 Bank of America Merrill Lynch 284,218.69 988 8.01%
4 Goldman Sachs 215,758.12 710 6.08%
5 Barclays 207,555.74 805 5.85%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
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1 HSBC 32,400.29 147 6.76%
2 Deutsche Bank 32,042.83 103 6.69%
3 Bank of America Merrill Lynch 28,820.43 84 6.02%
4 BNP Paribas 25,608.74 143 5.35%
5 Credit Agricole CIB 22,617.86 130 4.72%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 18,067.92 70 9.12%
2 Morgan Stanley 15,215.44 76 7.68%
3 UBS 14,195.29 55 7.17%
4 Citi 14,014.57 86 7.07%
5 Goldman Sachs 12,113.98 67 6.11%