Quantitative easing and preferred habitat investors in the euro area bond market
Published: 28 January 2025
By: Martijn Boermans Tomás Carrera de Souza Robert Vermeulen
In this study, we analyze the impact of the European Central Bank’s (ECB) sovereign bond purchases on bond demand among euro area investors from 2015 to 2022. By employing a novel demand setup, using ownership shares of individual bonds, we separately estimate investor reactions to (i) ECB bond purchases and (ii) new bond issuances. Utilizing bond level data on securities holdings of euro area investors and the ECB, we show that insurance companies and pension funds act as preferred habitat investors and are reluctant to sell the bonds the ECB is buying. Conversely, non-euro area investors from the private sector primarily serve as counterparties for ECB purchases. Our findings indicate significant differences across bond maturities and credit ratings, but minimal differences across the different stages of the quantitative easing (QE) implementation periods and between domestic and non-domestic euro area bonds.
Keywords: quantitative easing; sovereign bonds; European Central Bank; PSPP; securities holdings statistics; bond demand
JEL codes E58; F42; G11; G15
Working paper no. 826
Quantitative easing and preferred habitat investors in the euro area bond market
Research highlights:
- The study evaluates how sovereign bond investors have responded to ECB asset purchase programmes between 2015-2022.
- By employing a novel demand setup, using ownership shares of individual bonds and ECB transactions we separately estimate investor reactions to (i) ECB bond purchases and (ii) new bond supply.
- We use a novel demand approach based on granular data of ownership shares of individual bonds and ECB transactions, allowing us to avoiding common biases arising from investor size or new bond supply
- We show that European insurance companies and pension funds were preferred habitat investors and were reluctant to sell those bonds purchased by the ECB, while non-euro area private investors were the primary sellers.
- Our findings indicate significant differences in preferred habitat across bond maturities and credit ratings, but minimal differences across the different stages of the quantitative easing (QE) implementation periods and between domestic and non-domestic euro area bonds,
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