ECB: Details of ABS and Covered Bond purchase programs

  • Programmes will last at least two years
  • Will enhance transmission of monetary policy, support provision of credit to the euro area economy and, as a result, provide further monetary policy accommodation
  • Eurosystem collateral framework is guiding principle for eligibility of assets for purchase
  • Asset purchases to start in fourth quarter 2014, starting with covered bonds in second-half of October

The Governing Council of the European Central Bank (ECB) today agreed key details regarding the operation of its new programs to buy simple and transparent asset-backed securities (ABSs) and a broad portfolio of euro-denominated covered bonds. Together with the targeted longer-term refinancing operations, the purchase programs will further enhance the transmission of monetary policy. They will facilitate credit provision to the euro area economy, generate positive spillovers to other markets and, as a result, ease the ECB’s monetary policy stance. These measures will have a sizeable impact on the Euro system’s balance sheet and will contribute to a return of inflation rates to levels closer to 2%.

The Eurosystem’s collateral framework – the rules that lay out which assets are acceptable as collateral for monetary policy credit operations – will be the guiding principle for deciding the eligibility of assets to be bought under the ABS purchase programme (ABSPP) and covered bond purchase programme (CBPP3). There will be some adjustments to take into account the difference between accepting assets as collateral and buying assets outright. To ensure that the programmes can include the whole euro area, ABSs and covered bonds from Greece and Cyprus that are currently not eligible as collateral for monetary policy operations will be subject to specific rules with risk-mitigating measures.

The two programmes will last for at least two years and are likely to have a stimulating effect on issuance. Asset purchases will commence in the fourth quarter of 2014, starting with covered bonds in the second half of October. The ABSPP will start after external service providers have been selected, following an ongoing procurement process.

Further technical details on the ABSPP are provided in Annex 1 and on CBPP3 in Annex 2.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell