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Combined QT by the Fed and ECB removed $4.4 trillion in liquidity so far. A couple of years ago, this would have been an unimaginable feat.
By Wolf Richter for WOLF STREET.
Under its Quantitative Tightening program, the European Central Bank has reduced its total assets by €2.39 trillion as of the weekly balance sheet released today.
The ECB’s total assets, now at €6.45 trillion, are down by 27% from the peak of €8.84 trillion, and are at the lowest level since August 2020. The ECB has shed 58% of the amount in assets that it had piled on during the pandemic.
Compared to the Fed’s QT, and in USD at the current exchange rate, the ECB has shed $2.66 trillion in assets, while the Fed has shed $1.78 trillion. Combined, the Fed and the ECB have removed $4.44 trillion in QE liquidity since starting QT, which would have been ridiculously unimaginable before 2022, when QE forever had still been baked into the cake. But the sudden resurgence of inflation has forced their hands.
Loans and bonds.
Back in the day of QE, the ECB performed QE with two types of assets, loans and bonds.
The heavy lifting so far under the QT program was done by shedding its QE loans, which are down by 96%, or by €2.1 trillion, from the peak. With a remaining balance of just €87 billion, they are at the lowest level since 2005 (blue in the chart below).
The roll-off of its QT bonds was phased in, starting in March 2023, and was then accelerated. So far, the bond holdings have declined by 11%, or by €524 billion, from the peak. The roll-off accelerated further in July (red line).
Loan QT: -€2.11 trillion (-96%) from peak, to €87 billion. The ECB has always handled QE via waves of loans: during the Financial Crisis, the Euro Debt Crisis, the period of no-crisis, and the pandemic. The ECB called these loan programs Longer-Term Refinancing Operations (LTRO), then Targeted Longer-Term Refinancing Operations (TLTRO) with serial numbers. During the pandemic, the ECB called that generation of loans TLTRO III.
Total loans had peaked at €2.2 trillion, of which the pandemic generation of TLTRO III loans amounted to €1.6 trillion, with the remainder being composed of the still outstanding loans from prior programs. And they’re essentially now gone.
Bond QT: -€524 billion (-11%) from peak, to €4.44 trillion. The roll-off of its QT bonds was phased in starting in March 2023, and was then accelerated.
During QE, the ECB had purchased government bonds, corporate bonds, covered bonds, and asset-backed securities under two programs:
APP (“asset purchase programme” since 2014)
PEPP (“pandemic emergency purchase programme” since March 2020).
The bond roll-off takes place when bonds mature, and the ECB gets paid face value for them, but then doesn’t replace the maturing bonds by reinvesting the funds.
Initially, starting in March 2023, only APP bonds were allowed to roll off. But in July 2024, PEPP bonds started rolling off also (€7.5 billion matured without replacement), as part of the acceleration of QT.
Over the past four months, bonds have been rolling off at an average pace of about €37 billion ($41 billion) per month.
Bond QT is designed to run for years without fanfare on automatic pilot in the back ground, smoothly removing liquidity in a predictable manner, so liquidity has time to flow to where it’s needed from where it’s in excess, attracted by the higher yields that those who need liquidity are willing to pay. And so far, so good; nothing has blown up yet.
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The post QT Continues: ECB Balance Sheet: -€2.39 Trillion or -27% from Peak, to €6.45 Trillion, Lowest since August 2020 appeared first on Energy News Beat.
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