Bond purchase programmes by central banks represent massive market interventions that have a lasting effect on supply and demand.
The ECB’s first QE programme, which was launched in spring 2015, also had a noticeable impact on EMU’s capital account. In 2014, foreign investors had bought EUR 114 billion in EMU bonds. In 2015, however, this sum was reduced to EUR 30 billion. In the following three years, the situation turned around and foreign investors sold an impressive EUR 470 billion in EMU bonds. Domestic investors also did not remain unaffected by the massive intervention of the ECB: they fled en masse into foreign bonds and shares (EUR 1,500 billion in 2015-2018).
With the end of the programme in December 2018, however, the tide turned again. In the first seven months of this year, purchases of EMU bonds from abroad amounted to an impressive EUR 213 billion. French, Italian and German bonds were particularly popular. At the same time, domestic investors bought only EUR 130 billion in foreign equities and bonds during this period. The absence of the ECB thus led to a significant recovery in the capital account.
Conversely, however, it is now to be expected that the resumption of the programme will lead to a deterioration in the balance sheet. Since the ECB’s bond purchases will amount to „only“ EUR 20 billion per month, the change should not be as drastic as in 2015.