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Central bank asset purchases and auction cycles revisited: new evidence from the euro area

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fredag, april 19, 2024

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Working Paper Series

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Working Paper Series
Federico Maria Ferrara
Central bank asset purchases
and auction cycles revisited:
new evidence from the euro area

No 2927

Disclaimer: This paper should not be reported as representing the views of the European Central Bank
(ECB).
Abstract
This study provides new evidence on the relationship between unconventional monetary
policy and auction cycles in the euro area.
The findings indicate that Eurosystem?s asset purchase flows mitigate
yield cycles during auction periods and counteract the amplification impact of market volatility.
The dampening effect of central bank asset purchases on auction cycles is more sizeable and
precisely estimated for purchases of securities with medium-term maturities and in jurisdictions
with relatively lower credit ratings.
On the other hand, central banks may influence price dynamics in these markets, most notably
through their asset purchase programmes.
If so, do central bank asset purchases
affect bond yield movements around auction dates?
Auction cycles are present when secondary market yields rise in
anticipation of a debt auction and fall thereafter, generating an inverted V-shaped pattern around auction
dates.
ECB Working Paper Series No 2927
3

1

Introduction

The impact of central bank asset purchases on government bond markets is a focal point of economic and
financial research.
If so,
do central bank asset purchases shape yield sensitivity around auction dates?
The paper provides new evidence on the effects of Eurosystem?s asset purchases on secondary market
yields around public debt auction dates.
The analysis builds on previous research based on aggregate data
on central bank asset purchases and a shorter analysis period (van Spronsen and Beetsma 2022).
Using
granular data on Eurosystem?s asset purchases offers an opportunity to shed light on the mechanisms linking
unconventional monetary policy and auction cycles.
Given this legal constraint, the study
hypothesises that the effect of asset purchases on 10-year auction cycles is mostly indirect, and goes via price
spillovers generated by purchases of securities outside the 10-year maturity space.
Taken together, these results provide new evidence about auction cycles in Europe and contribute to a
larger literature on the flow effects of central bank asset purchases on bond markets.
Section 4 offers descriptive evidence about auction cycles in the euro area.
Auction cycles are defined by the presence of an inverted V-shaped pattern in secondary market yields
around primary auctions.
That is, government bond yields rise in the run-up to the date of the auction and
fall back to their original level after the auction.
Their limited risk-bearing capacities and inventory management operations are
seen as key mechanisms driving auction cycles (Beetsma et al.
ECB Working Paper Series No 2927
7

Second, central bank asset purchases can alleviate the cycle by (partly) absorbing the additional supply
of substitutable instruments in the secondary market (van Spronsen and Beetsma 2022).
This expectation is
supported by several analyses on the price effects of central bank bond purchases (D?Amico and King 2013;
Arrata and Nguyen 2017; De Santis and Holm-Hadulla 2020).
Empirically, previous research has provided evidence of auction cycles taking place across different jurisdictions.
(2016) detect auction cycles for government debt in Italy, but not in Germany, during the European
sovereign debt crisis.
Research on the impact of central bank asset purchases on yield cycles around auctions is still limited.
Their paper provides evidence
that Eurosystem?s asset purchases reduce the presence of auction cycles for euro area government debt.
Nonetheless, several questions remain open about auction cycles and unconventional monetary policy
in the euro area.
Therefore, they
provide only a partial picture of auction cycles and central bank asset purchases in Europe.
The use of granular data on central bank asset purchases is especially important in light of the modalities
of monetary policy implementation of the Eurosystem.
Altogether, these elements motivate further investigation of the relationship between central bank asset
purchases and auction cycles in the euro area.
Taken together, these results confirm that Eurosystem?s asset purchases mitigate yield cycles during auction periods and counteract the amplification impact of market volatility.
The findings confirm that the flow
effects of central bank purchases on yield movements around auction dates are driven by lower-rated countries.
Additional analyses provide evidence for an indirect effect of purchases on auction cycles and highlight
the presence of substantial heterogeneity across jurisdictions and purchase programmes.
Flow Effects of Central Bank Asset Purchases on Sovereign Bond
Prices: Evidence from a Natural Experiment.
Federico Maria Ferrara
European Central Bank, Frankfurt am Main, Germany; email: [email protected]
? European Central Bank, 2024
Postal address 60640 Frankfurt am Main, Germany
Telephone
+49 69 1344 0
Website
www.ecb.europa.eu
All rights reserved.

Monetary asmmetries without (and with) price stickiness

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fredag, april 19, 2024

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Letter from Piero Cipollone to Margrethe Vestager, European Commission Executive Vice-President, on feedback on commitments offered by Apple over access restrictions to near-field communication technology

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fredag, april 19, 2024

Finding an

Key Points:

Finding an
effective response to these concerns would support competition, foster innovation and increase choice for
consumers with mobile wallets on their iPhones.
We note that Apple?s proposed commitments would not give third parties full access to the secure element (SE),
but only allow for the usage of Host Card Emulation (HCE).
Crucially, access to the SE is vital for mobile device based offline digital euro payments.
3 4 Therefore, Apple?s
proposed commitments, which do not provide full access to the SE of iOS smart phones, would not facilitate
offline payments with digital euro on iPhones.
We understand that the Commission?s antitrust investigation, and Apple?s proposed commitments on access to
NFC technology, are limited to in-store payments with iOS smart phones.
As a result, the ability of merchants to accept payments with Apple devices other than
through ApplePay might be limited.
I would like to take this opportunity to express our appreciation for other Commission initiatives which have
implications for the European retail payment ecosystem.
9
An effective implementation of Article 33 on FRAND access to a series of mobile devices is of paramount importance for the offline variant
of the digital euro.

Letter from Piero Cipollone to Thierry Breton, European Commissioner for Internal Market, on feedback on commitments offered by Apple over access restrictions to near-field communication technology

Retrieved on:

fredag, april 19, 2024

Finding an

Key Points:

Finding an
effective response to these concerns would support competition, foster innovation and increase choice for
consumers with mobile wallets on their iPhones.
We note that Apple?s proposed commitments would not give third parties full access to the secure element (SE),
but only allow for the usage of Host Card Emulation (HCE).
If the proposed commitments
would also be applicable to a potential digital euro, they would not, per se, guarantee that digital euro payments
made using iPhones were seamless and user-friendly.
Crucially, access to the SE is vital for mobile device based offline digital euro payments.
3 4 Therefore, Apple?s
proposed commitments, which do not provide full access to the SE of iOS smart phones, would not facilitate
offline payments with digital euro on iPhones.
We understand that the Commission?s antitrust investigation, and Apple?s proposed commitments on access to
NFC technology, are limited to in-store payments with iOS smart phones.
As a result, the ability of merchants to accept payments with Apple devices other than
through ApplePay might be limited.
9
An effective implementation of Article 33 on FRAND access to a series of mobile devices is of paramount importance for the offline variant
of the digital euro.

Unlocking efficiency: optimal monetary policy when capital misallocation matters

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fredag, april 19, 2024

While “misallocation of capital” and its detrimental impact on productivity is traditionally beyond the scope of central banks, monetary policy can influence it through firms’ investment decisions.

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While “misallocation of capital” and its detrimental impact on productivity is traditionally beyond the scope of central banks, monetary policy can influence it through firms’ investment decisions.
Using a New Keynesian model and granular data on Spanish firms, our results show that expansionary monetary policy reduces capital misallocation.

Christine Lagarde, Luis de Guindos: Monetary policy statement (with Q&A)

Retrieved on:

torsdag, april 18, 2024

Stock market development and familiarity (language and distance) are considered key determinants for home bias.

Key Points:

Stock market development and familiarity (language and distance) are considered key determinants for home bias.
The literature neglects however that investors often invest in foreign funds domiciled in financial centers.

Results of the ECB Survey of Professional Forecasters for the second quarter of 2024

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torsdag, april 18, 2024

Reproduction, Growth, ECB, Unemployment, Real, Frankfurt, SPF, Communication, Food, HICP, GDP, European Central Bank

Headline HICP inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026.

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Headline HICP inflation was expected to decline from 2.4% in 2024 to 2.0% in both 2025 and 2026.
Expectations for core HICP inflation, which excludes energy and food, were also unchanged for the years from 2024 to 2026.
Respondents expected real GDP growth of 0.5% in 2024, 1.4% in 2025 and 1.4% in 2026.
Notes
- The SPF for the second quarter of 2024 was conducted between 18 and 21 March 2024 and 61 responses were received.

Results of the March 2024 Survey on credit terms and conditions in euro-denominated securities financing and over-the-counter derivatives markets (SESFOD)

Retrieved on:

torsdag, april 18, 2024

Reproduction, Credit, Frankfurt, Publication, OTC, Communication, European Central Bank, ECB, Security (finance)

Stock market development and familiarity (language and distance) are considered key determinants for home bias.

Key Points:

Stock market development and familiarity (language and distance) are considered key determinants for home bias.
The literature neglects however that investors often invest in foreign funds domiciled in financial centers.

Frank Elderson: “Know thyself” – avoiding policy mistakes in light of the prevailing climate science

Retrieved on:

torsdag, april 18, 2024

Stock market development and familiarity (language and distance) are considered key determinants for home bias.

Key Points:

Stock market development and familiarity (language and distance) are considered key determinants for home bias.
The literature neglects however that investors often invest in foreign funds domiciled in financial centers.

Philip R. Lane: Disinflation in the euro area: an update

Retrieved on:

torsdag, april 18, 2024

Stock market development and familiarity (language and distance) are considered key determinants for home bias.

Key Points:

Stock market development and familiarity (language and distance) are considered key determinants for home bias.
The literature neglects however that investors often invest in foreign funds domiciled in financial centers.