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Strategist Ioannis Sokos at Nomura........>

EGB FLOWS
EGB FLOWS: Strategist Ioannis Sokos at Nomura looked at the ECB data regarding
MFI balance sheets for December that were released on Friday. The highlight is
that in 2017, Eurozone MFIs reduced their holdings of sovereign debt holdings by
10%, an acceleration from the 6% reduction in 2016.
- From the peak of sovereign debt holdings in Q1 2015 at E1.88trn, Sokos
calculates that there has been a cumulative 23% decline (E413bln) and that
holdings have returned to 2012 levels. "Home bias is still very strong among
peripheral MFIs".
- The decline in sovereign debt holdings has been led by Italian MFIs "Italian
banks reduced their domestic sovereign debt holdings by...more than any of their
peers in absolute terms. Moreover, E40bn of the total annual E49bn reduction
took place in Q4 2017". Despite these reductions, sovereign debt holdings remain
extremely elevated in both Italy and Spain. 

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