There are some economists and commentators who talk of never-ending cycles of bond purchases by central banks. They struggle to see central bankers admitting defeat and abandoning their quantitative easing programmes. At the back of their minds, however, they and everyone else know that bond purchases by European, Japanese and US central banks must eventually come to an end. Someone is going to have to pick up the tab.
So when a report comes out suggesting the European Central Bank is preparing for just that, an end to bond purchases, albeit in a gradual, tapered manner, it naturally causes quite a bit of angst. All it took was report of officials discussing the manner in which the ECB asset purchase programme will end. As it is, it is scheduled to end in March 2017. However, the programme will operate beyond the scheduled finish date “if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”
The report in question is unsubstantiated and was denied by the ECB which stated the European Governing Council “has not discussed these topics…”. However, the denial did not stop yields on German 10 year bunds, UK gilts and US Treasurys all moving up by 3-4bps on the day. Australian 10 year bond yields took the lead from offshore and rose a similar amount. The next ECB policy meeting is scheduled for 20 October 2016.