2019 Eurozone Government Bond Supply and Market Implications
Core Content
This report provides a preliminary forecast of the eurozone government bond supply for 2019, alongside analysis of the impact of the European Central Bank's (ECB) quantitative easing (QE) and reinvestment policies on bond yields.
Key Messages
- Gross supply for 2019 is estimated at EUR860bn, unchanged from 2018.
- Redemptions are expected to rise to EUR670bn, an increase of EUR40bn compared to 2018.
- Net supply for 2019 is projected at EUR190bn, a EUR40bn decrease from 2018.
- The ECB will not continue QE beyond December 2018, but reinvestment flows are expected to increase significantly.
- PSPP reinvestments are forecast at EUR130bn in Germany, France, Italy, and Spain, a doubling from 2018.
- Gross supply less QE (including reinvestment) is expected to rise by EUR120bn to EUR730bn.
- Net supply less QE (excluding reinvestment) is projected to increase by EUR150bn to EUR190bn.
Main Points
2019 Supply Forecast Overview
| Country |
Gross Supply (EURbn) |
Net Supply (EURbn) |
Change vs 2018 (EURbn) |
Change vs 2018 (%) |
| Germany |
140.0 |
42.0 |
-8.0 |
-3.4% |
| France |
220.0 |
30.0 |
87.1 |
-1.8% |
| Italy |
255.0 |
34.7 |
60.0 |
6.7% |
| Spain |
130.0 |
19.4 |
37.9 |
-1.5% |
| Belgium |
30.0 |
8.4 |
-2.0 |
-11.8% |
| Netherlands |
23.0 |
-6.8 |
-1.0 |
-4.2% |
| Austria |
18.0 |
-7.8 |
2.7 |
17.6% |
| Finland |
10.0 |
5.0 |
0.0 |
0.0% |
| Ireland |
18.0 |
4.9 |
0.0 |
0.0% |
| Portugal |
15.0 |
6.4 |
-2.0 |
-5.2% |
| Total |
859.0 |
187.2 |
732.9 |
0.1% |
QE Impact
- ECB QE purchases excluding reinvestments are expected to collapse to zero in 2019, a EUR180bn decline from 2018.
- PSPP reinvestments are projected to be EUR130bn, up from EUR65bn in 2018.
- The total QE buying in 2019 is estimated at EUR130bn, a EUR120bn drop from 2018.
- Gross supply less QE is expected to rise by EUR120bn to EUR730bn.
- Net supply less QE is forecast to increase by EUR150bn to EUR190bn.
Market Implications
- The ECB has argued that the stock of central bank balance sheets is more important for yield levels than the flow of QE.
- Despite the expected collapse of QE, the increase in reinvestment flows will still be a headwind for bond markets.
- The DV01 proxy for EGB supply net of QE is expected to rise further in 2019, with the extent depending on potential Twist operations or a further decline in WAM.
- Even with a less significant increase in DV01 proxy, there is scope for a rise in yields in 2019, all else equal.
Monthly Breakdown
Gross Supply
| Month |
Germany (EURbn) |
France (EURbn) |
Italy (EURbn) |
Spain (EURbn) |
Belgium (EURbn) |
Netherlands (EURbn) |
Austria (EURbn) |
Finland (EURbn) |
Ireland (EURbn) |
Portugal (EURbn) |
Total (EURbn) |
| January |
15 |
21 |
39 |
20 |
4 |
2 |
6 |
0 |
4 |
4 |
85 |
| February |
13 |
21 |
24 |
16 |
4 |
0 |
2 |
3 |
1 |
1 |
62 |
| March |
13 |
22 |
28 |
10 |
-6 |
6 |
-10 |
0 |
1 |
1 |
64 |
| April |
12 |
18 |
25 |
9 |
4 |
5 |
1 |
1 |
4 |
4 |
47 |
| May |
12 |
22 |
26 |
9 |
0 |
2 |
1 |
0 |
1 |
1 |
61 |
| June |
10 |
26 |
18 |
16 |
4 |
7 |
-6 |
1 |
0 |
1 |
67 |
| July |
12 |
30 |
20 |
6 |
3 |
4 |
1 |
-5 |
1 |
1 |
48 |
| August |
14 |
8 |
3.8 |
5 |
0 |
3 |
0 |
3 |
0 |
0 |
33 |
| September |
11 |
19 |
9.4 |
14 |
-8 |
9 |
2 |
0 |
1 |
1 |
51 |
| October |
12 |
19 |
22 |
9 |
0 |
11 |
3 |
1 |
-3 |
1 |
40 |
| November |
13 |
19 |
19 |
8 |
3 |
4 |
0 |
1 |
1 |
1 |
49 |
| December |
3 |
4 |
6 |
3 |
0 |
3 |
0 |
0 |
0 |
0 |
12 |
| Total |
140 |
220 |
255 |
130 |
30 |
23 |
18 |
10 |
18 |
15 |
619 |
Redemptions
| Month |
Germany (EURbn) |
France (EURbn) |
Italy (EURbn) |
Spain (EURbn) |
Belgium (EURbn) |
Netherlands (EURbn) |
Austria (EURbn) |
Finland (EURbn) |
Ireland (EURbn) |
Portugal (EURbn) |
Total (EURbn) |
| January |
24 |
11 |
0 |
18 |
0 |
15 |
6 |
0 |
4 |
4 |
57 |
| February |
16 |
11 |
23 |
0 |
4 |
16 |
0 |
3 |
1 |
1 |
51 |
| March |
13 |
0 |
24 |
0 |
-6 |
10 |
1 |
0 |
1 |
1 |
28 |
| April |
16 |
29 |
11 |
22 |
4 |
5 |
1 |
1 |
4 |
4 |
58 |
| May |
0 |
17 |
28 |
0 |
0 |
9 |
1 |
0 |
1 |
1 |
44 |
| June |
13 |
0 |
0 |
0 |
4 |
16 |
-6 |
1 |
0 |
1 |
36 |
| July |
24 |
12 |
0 |
21 |
3 |
6 |
1 |
-5 |
1 |
1 |
76 |
| August |
0 |
0 |
15 |
0 |
0 |
5 |
0 |
3 |
0 |
0 |
15 |
| September |
13 |
0 |
41 |
14 |
-8 |
9 |
2 |
0 |
1 |
1 |
65 |
| October |
16 |
42 |
27 |
5 |
0 |
11 |
3 |
-7 |
-3 |
1 |
119 |
| November |
12 |
22 |
19 |
10 |
3 |
4 |
0 |
-7 |
1 |
1 |
44 |
| December |
3 |
4 |
3 |
3 |
0 |
3 |
0 |
0 |
0 |
0 |
28 |
| Total |
148 |
133 |
195 |
92 |
22 |
30 |
26 |
5 |
13 |
8 |
672 |
Net Supply
| Month |
Germany (EURbn) |
France (EURbn) |
Italy (EURbn) |
Spain (EURbn) |
Belgium (EURbn) |
Netherlands (EURbn) |
Austria (EURbn) |
Finland (EURbn) |
Ireland (EURbn) |
Portugal (EURbn) |
Total (EURbn) |
| January |
-9 |
21 |
39 |
2 |
4 |
-13 |
6 |
0 |
4 |
4 |
59 |
| February |
-3 |
10 |
0 |
16 |
4 |
-1 |
2 |
3 |
1 |
1 |
34 |
| March |
0 |
22 |
4 |
10 |
-6 |
6 |
-10 |
0 |
1 |
1 |
28 |
| April |
-4 |
-11 |
14 |
-13 |
4 |
2 |
1 |
1 |
4 |
1 |
1 |
| May |
12 |
5 |
-1 |
9 |
0 |
2 |
1 |
0 |
1 |
1 |
30 |
| June |
-3 |
26 |
18 |
16 |
4 |
7 |
-6 |
1 |
0 |
1 |
44 |
| July |
-12 |
8 |
20 |
-10 |
3 |
4 |
1 |
-5 |
1 |
1 |
-3 |
| August |
14 |
8 |
-4 |
5 |
0 |
3 |
0 |
3 |
0 |
0 |
25 |
| September |
-2 |
19 |
-22 |
14 |
-8 |
9 |
2 |
0 |
1 |
1 |
8 |
| October |
-4 |
-23 |
-6 |
-12 |
0 |
3 |
3 |
-7 |
-3 |
1 |
-49 |
| November |
13 |
-3 |
7 |
-2 |
3 |
1 |
0 |
1 |
1 |
1 |
21 |
| December |
-10 |
4 |
-9 |
3 |
0 |
0 |
0 |
0 |
0 |
0 |
-12 |
| Total |
-15 |
87 |
60 |
38 |
8 |
-7 |
-8 |
5 |
5 |
7 |
187 |
Key Information
- Italy is expected to have the largest increase in gross supply in 2019.
- The ECB's QE reinvestment will increase significantly, particularly in Italy and Spain, with Germany remaining at a lower level.
- DV01 proxy for EGB supply net of QE is likely to rise further in 2019, even with a Twist or WAM decline.
- The new capital key may impact the reinvestment policy, but it is unlikely to be applied to the entire PSPP portfolio.
- The monthly supply patterns are expected to follow the 2018 pattern, with some adjustments for individual countries.
- Redemption flows are expected to increase across the eurozone, particularly in Italy and Spain.
- The overall impact of 2019 supply on bond yields is expected to be positive, due to increased supply and reduced QE.