COVID19: EU recovery fund buys €481 mln Cyprus bonds

1 min read

The European Central Bank (ECB) has bought Cypriot bonds amounting to €481 mln as part of the €750 bln Pandemic Emergency Purchase Programme (PEPP) launched as a response to the coronavirus outbreak.

The ECB’s new purchase, coupled with the bonds acquired in the context of the Public Securities Purchase Programme (PSPP) bring the total Cypriot eligible debt held by the ECB to approximately €3 bln.

According to the data published by the ECB, monthly purchases of Cypriot bonds for the period of March-May amounted to €481 mln with the weighted average of the acquired bonds at 8.2 years.

Cypriot bond net purchases in the context of the PSPP amounted to €92 mln by end-May with total purchases under the PSPP reaching €2.4 bln with a weighted average of 9.25 years.

Furthermore, analysts estimate that the ECB Governing Council which convenes Thursday may decide to increase the PEPP’s firepower – by €500 bln – as the emergency programme’s reserve may run out by September.

The new program, which investors expect the ECB to enlarge, has succeeded in capping interest-rate spreads between core and peripheral Eurozone states.

But experts say spreads remain elevated and investors are jittery, especially given the likelihood that the COVID-19 crisis will increase Italy’s public debt to 150-160% of GDP for the foreseeable future. There is no good way to finesse that shock.

It is also argued that PEPP’s ability to target asset purchases, and without imposing policy conditions on the beneficiaries, make it a more potent weapon than the outright monetary transactions scheme introduced by then-ECB President Mario Draghi at the height of the 2012 euro crisis.