Assessing Asset Purchases within the ECB’s Securities Markets Programme

Abstract

We assess the yield impact of asset purchases within the ECB’s Securities Markets Programme in five euro area sovereign bond markets during 2010-11. Identification is non-trivial and based on time series panel data regression on predetermined purchases and control covariates. In addition to large and economically significant announcement effects, we find an average impact at the five year maturity per e1 bn of bond purchases of approximately -1 to -2 bps (Italy), -3 bps (Ireland), -4 to -6 bps (Spain), -6 to -9 bps (Portugal), and up to -17 to -21 bps (Greece). The impact depends on market size and a default risk signal, and is approximately -3 basis points at a five-year maturity for purchases of 1/1000 of the respective debt market. Bond yield volatility is lower on intervention days for most SMP countries, due to less extreme movements occurring when the Eurosystem is active as a buyer. A dynamic specification points to both transitory and longer-lived effects from purchases. JEL Classification: C32, G12