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[LONDON] The start of the European Central Bank's quantitative easing programme left market participants disappointed on Monday with many asking how the bank will get to its targeted size of 60 billion a month.
According to bankers, while the ECB has been active, its purchases have been surprisingly small.
"The average ticket is only around 2m, although some go up to 20m, and I am slightly puzzled by the size," said one debt market official.
Unless the central bank steps up the pace, he doubted whether it could achieve its target. He also noted that unlike previous examples at the onset of unconventional central bank programmes, the market this time has continued to rally.
"It's normally buy the rumour, sell the fact. It's not the case here. It's buy the rumour, buy the fact." Market participants say the buying has been across the board, in all names, markets and in maturities above five-years.
Another banker agreed that the ECB would struggle to meet its target at the current rate of purchases, but added: "It's a bit of a game of cat and mouse. The ECB is never going to be transparent."
The buying has had a stronger impact on the core/semi-core markets than on the periphery with 10-year yields in Germany and France lower by some 6-6.5bp, while 10-year yields in Italy and Spain are down 2-3bp.
The impact on supras and agencies has also been felt. An EIB 6bn July 2020 bond was quoted at less 32bp, according to Tradeweb prices, 2bp tighter than Friday and 15bp tighter than in early January.
KfW's 1.25 per cent October 2019s have tightened to less 31.3bp from less 30.8bp on the open. That deal was trading at less 19bp in early January.
"We are reaching a real pain test for a number of investors like bank treasuries and insurance companies," the first banker said.
"The ECB is going to keep on squeezing the market and it's not good news for everyone. Some will have to sell, although the question is: what will they substitute this paper with?"
When the ECB started its third covered bond purchase programme, it also left many disappointed. It has, however, picked up the pace since it started last October and has now bought over 51 billion of paper.
However, unlike the public sector market, the ECB is not limited to the secondary market and has been able to buy large deal chunks in primary.