In the first data release since the ECB activated PEPP reinvestment flexibility, we find a heavy skew in country allocation, away from core countries like Germany and towards the periphery, especially Italy and Spain, over the month of July 2022.
The ECB bought lots of Italian gov’t bonds in June & July and sold lots of German Bunds. This is the ECB steering proceeds from maturing government bonds in core countries like Germany and the Netherlands to benefit Italy. As the former Goldman FX trader correctly concludes, “Lo Spread” would be a lot wider without this going on.
The bi-monthly breakdown of PEPP holdings for the months of June and July 2022 represents the first data release since the ECB activated PEPP reinvestment flexibility as the first line of defense against fragmentation, as of July 1st. The country allocation of net purchases shows a heavy skew in allocation, away from core countries and towards the periphery, for aggregate stability in holdings. The allocation of PEPP holdings across asset classes is stable, however, with holdings of private assets unchanged. The weighted average maturity of PEPP holdings is largely unchanged since March 2022.
Source: Tyler Durden | ZeroHedge