Europe’s Biggest Buyer of Bonds Is Starting to Think About Selling

14
  • With inflation at record highs and a number of rate hikes under its belt, markets are now awaiting details on how and when the European Central Bank will sell bonds.
  • Back in October, ECB President Christine Lagarde said the discussions over bond sales will consider three main factors.
  • “It is appropriate that the balance sheet is normalized over time in a measured and predictable way,” Lagarde said Monday.

The European Central Bank could be about to answer a lingering question in the coming weeks that could have major repercussions for financial markets.

At its December meeting, the ECB is set to discuss and reveal more concrete details on how it will unwind 8.8 trillion euros ($9.21 trillion) from its balance sheet — in a process known as quantitative tightening.

For years, the central bank has been ultra loose with its monetary policy, buying sovereign debt across Europe to keep borrowing costs low for governments and, subsequently, for individuals to help stimulate growth.

However, with inflation at record highs and a number of rate hikes under its belt, markets are now awaiting details on how and when the ECB will sell these bonds.

“The biggest question in December is what they’ll do regarding QT,” Marchel Alexandrovich, European economist at Saltmarsh Economics, told CNBC over the phone.

Back in October, ECB President Christine Lagarde said the discussions over bond sales will consider three main factors: the inflation outlook, the measures taken so far, and the transmission lag — given that it takes a while for any monetary decision to have an impact on the economy.