Source Reports Flag Organic Rundown Of B/S, Not Outright Sales

A couple of ECB source reports hit during the NY-Asia crossover, the messaging in the reports was very similar.

• BBG sources pointed to hawks pushing for the start of the ECB balance sheet unwind process by early ’23, with a preference for organic rundown via bond maturities, as opposed to outright sales (although the source piece noted that the latter should not be ruled out). They see interest rates a the dominant tool in monetary policy.
• RTRS sources noted that “policymakers envisioned the start of quantitative tightening sometime in the second quarter of 2023. The ECB could already tweak its language on reinvestments at its October meeting and then could provide a detailed plan possibly in December but more likely in February… With rate increases already underway, reinvestments will also need to come to a close. A seminar presentation at the central bank's Cyprus meeting saw an end to full reinvestments in the second quarter of next year, with some policymakers mentioning earlier dates and others advocating June. The debt pile would be run down by not reinvesting all cash from maturing debt rather than outright sales. Policy hawks also appeared to be on board with this plan, as they are prioritising rate hikes and saw the balance sheet question as a secondary issue… No decision on this timeline has been taken and there could be changes. The discussions were in an early stage and the presentation was not a policy proposal.”