The European Central Bank (ECB) has scrapped nearly all limits to its bond-buying programme, significantly widening the scope of the €750bn (£700bn) of asset purchases it announced last week.
The Eurozone’s central bank has previously followed self-imposed rules that say it cannot buy more than a third of a country’s sovereign debt.
The Bank was close to the limit in countries such as Germany, however. This would have constrained the huge quantitative easing (QE) programme it launched to tackle the economic fallout from coronavirus.
In a legal decision published last night, the ECB said the 33 per cent limit will not apply to its pandemic emergency purchase programme (PEPP) of bond-buying.
Bank of America analyst Sophia Salim said the decision “suggests there is no limit to the PEPP support, and the €750bn can theoretically be increased if needed even if most of it goes into public sector bonds”.
The central bank also confirmed that it would buy Greek bonds for the first time since the Eurozone crisis.
The bonds of so-called periphery nations such as Italy, Portugal and Greece rallied this morning following the decision.
The yield on Italy’s 10-year bond fell 10 basis points (0.1 percentage points) to 1.449 per cent. The Greek 10-year yield fell 30 basis points to 1.993 per cent. Yields move inversely to price.
However, the decision to relax almost all of the ECB’s bond-buying rules is likely to face stiff opposition from financially conservative countries such as Germany and the Netherlands.
German critics currently have a case pending in the German courts which argues the ECB has overstepped the mark in its bond-buying.
Salim said the decision was good for Germany’s bonds and therefore the country’s borrowing costs, however. “Before we thought that there was little more the ECB could buy, capping the richening of Bunds that could come purely from ECB buying. This is now gone,” she said.