Greek, German, Portuguese, Spanish debt to benefit most from ECB QE – ABN Amro

Greek, German, Portuguese and Spanish bonds stand to benefit most if the European Central Bank expands its asset purchases to sovereign bonds and mostly target longer-term debt, according to calculations by ABN AMRO.

ECB Vice President Vitor Constancio said on Wednesday the bank will be able to decide in the first quarter of 2015 whether to start buying government bonds, and purchases would be based on each country’s share of the ECB’s capital – the «capital key».

This is weighted according to member states’ shares of the population and gross domestic product of the European Union. Germany, the most populous and biggest economy, has just under an 18 percent share while Ireland and Slovakia account for 1-2 percent, according to the Bundesbank.

Italy, Austria, Ireland and Belgium are seen benefiting less in relative terms from direct ECB purchases, ABN Amro said in a note. Each has either a large domestic market or a relatively small share of the capital key, meaning the central bank purchases would not have a material impact.

Peripheral euro zone bonds have benefited the most from the ECB’s easing measures and the prospect of more as investors tried to maximise returns by buying higher-yielding debt.

It is unclear what maturity of bonds the ECB would buy under its quantitative easing programme. But under its Outright Monetary Transaction scheme, which was never used, it targeted maturities of at least three years.

ABN Amro analyst Kim Liu assumes the ECB would buy 750 billion euros of bonds, focusing 70 percent of it in debt maturing in five to 15 years – almost half of outstanding euro zone bonds which equates to around 2.5 trillion euros. Germany, Portugal, Greece and Spain would benefit the most because the amount of five- to 15-year debt is a higher proportion of outstanding debt compared with the others.

Liu calculates that the ECB would buy 15 billion euros or 57 percent of Greek five- to 15-year bonds, though given private investors hold a relatively small share of Greek debt, he says the outcome might be less.

Next would be German Bunds, with ECB purchases seen at about 132 billion euros or 32 percent of debt in the targeted maturities, followed by Portugal at 30 percent and Spain at 22 percent.


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