The QE figures for June showed the PSPP share rose to 83%, close to the highest on record, and significantly higher than recent trend with the new purchase rate commencing in January. The recent surge in PSPP share can be attributed to reduced primary market actively to which ECB has been very present for the non-PSPP part. We expect the share to remain elevated through summer , before settling lower in the 70%-range again. Total APP and PSPP purchase volume was EUR31.2bn and EUR25.0bn respectively.
Capital key deviation remained overall unchanged, except Portugal which ticked slightly upwards. On the margin, Ireland also continued its 'reducing capital key deviation'-trend but only marginally. We expect this trend to continue, reducing some of the PSPP 'slack' from cumulative capital key deviation.
Redemptions continue to distort the weighted average maturities (WAM). German WAM jumped again (to 16.4years), distorted by the redemption of the old Schatz, where weekly data suggest that ECB held close to the EUR3.5bn of that ISIN, which is to be reinvested. French WAM dropped to 11.4years without redemptions, while Italian WAM was 15.2 years, but have been distorted in the previous three months due to redemptions.
Looking ahead, the extra month of available PSPP redemptions indicate a 'small' amount reinvestments in June 2019 . In June 2019; EUR7.3bn in PSPP and EUR11.2bn for APP in total. Until then, we only observe Aug/Sep this year and February 2019 as months with less reinvestments. That said, PSPP reinvestments will average EUR12.1bn during the next 12 month , continuing to support the accommodative monetary policy stance.
With the 'anticipated' end to the APP this year, focus has turned to the length of which ECB will reinvestment its maturing bonds. ECB is in no hurry to formally announce this , but we nevertheless expect an announcement in the coming meetings. Draghi said in June on reinvestments that it is an ' important decision that we'll take in the months ahead'. We expect a commitment to continue reinvestments and provide an 'at least until' date similar to recent rate guidance . We expect ECB to start a gradual balance sheet reduction in 2021 (2-3y after the end of the net asset purchases).
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