The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration

This study investigates the impact of the Eurosystems Public Sector Purchase Programme (PSPP) on the micro market structure of sovereign bonds. In particular, we analyze how the PSPP affected the ownership concentration of PSPP-eligible bonds. In line with portfolio rebalancing models we hypothesize that the entry of relatively new and dominant investor will unevenly displace certain investors who are willing to rebalance their portfolios, thus reducing the dispersion of holdings in the market. Using detailed security-by-security holdings data, we estimate a difference-in-differences model with a matched control group. We find that the announcement of the PSPP did not affect the ownership concentration of sovereign bonds. However, during the implementation phase the asset purchases increased the ownership concentration of the eligible sovereign bonds relative to the control group, potentially due to asymmetric portfolio rebalancing. We argue that quantitative easing had market distortionary effects and our results may explain the growing concerns for bond scarcity, market liquidity dry-ups and price spikes in the European sovereign bond market. 
 
Keywords: quantitative easing, portfolio rebalancing, market concentration, ECB, PSPP, securities holdings statistics, unconventional monetary policy.
JEL classifications: G11; E52; E58.

Working paper no. 590