Goldman: ECB’s Corporate Bond QT: Little Sign Of Indigestion

Goldman Sachs note that “the unwind of the ECB's APP portfolio began in March with uncapped passive runoff beginning in July. Over the past seven months the CSPP portfolio has shrunk by €11bn with monthly runoff projected at roughly €3bn/month over the next two years.”

• “Despite the loss of a large passive source of demand, the EUR IG market has underperformed only mildly since March. 2023 has been a brisk year for EUR IG primary market supply with year-to-date issuance running over 20% ahead of last year’s pace.”
• “The technical headwind from robust supply is as likely as QT to be the source of the mild underperformance of EUR IG spreads.”
• “Our European economists do not expect any near-term changes to the ECB’s QT program, pointing out that the Governing Council demonstrated “little urgency to accelerate the pace of balance sheet unwind” at its most recent meeting.”
• “In previous research, we showed that the announcement effect trumps the flow effect when it comes to asset purchases, which appears to apply to portfolio runoff as well.”
• “We continue to expect CSPP portfolio runoff to remain well-digested by the EUR IG market even as the average monthly pace of runoff gradually steps up over the coming years.”