Now that the European Central Bank has retreated from the QE program, what will the European economy have in store for use in the future? For the first time in four years, the European Central Bank will not, this month, increase its holdings in government bonds. The Central Bank will meet in Frankfurt this month and for the first time in years, will not be buying bonds. So how will the meeting proceed?
We at Classiarius feel that the bankers will all be pulling for a 2019 and 2020 that is not shockingly weak. Think about the recent IMF research report that says the 2.3 percent global growth of advanced economies will fade to 2.0 percent in 2019 and then to 1.7 percent in 2020 – please have a look at our recent articles.
But the ECB buying of 2.5 trillion euros of bonds was a massive amount. At times during this project, the ECB bought bonds much faster than the Fed, buying them at a faster rate than issuance of new bonds. This is partly because the core eurozone countries have been running a capital account surplus. The aggressive buying and the lack of new paper showed that there were few alternatives for investors. With the shortage of highly rated debt, investors were forced to look for debt elsewhere.
Public data points to this. Since the start of 2015, euro area investors bought a net 525 billion euros of US debt securities and 158 billion of sterling debt securities. These numbers were published by Jeffries.
So the next questions will be. As the ECB fades out of its buying program, just how will this impact the US Treasury and UK Gilt markets.