April 4, 2018 / 3:33 PM / 4 months ago

UPDATE 1-ECB writes down value of bond pile after buying at premium

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By Francesco Canepa

FRANKFURT, April 4 (Reuters) - The European Central Bank wrote down the value of its huge pile of bonds by a record 8.17 billion euros ($10.05 billion) last quarter to account for government debt bought at inflated prices over the past three years, ECB data showed on Wednesday.

Critics of the ECB’s 2.55 trillion euro stimulus programme have often flagged the risk of losses for euro zone taxpayers and this issue is likely to come to the fore in the coming years when the bonds are eventually sold.

The value that the ECB has deducted from its bond holdings every quarter has been steadily rising, along with its stock of debt, since it started massive purchases of government paper in 2015 in a bid to boost inflation in the euro zone.

This accounting change, known in market parlance as amortisation, effectively staggers the loss that the ECB suffers when a bond that it has bought at a premium is repaid at face value.

This paper loss is offset by coupon payments for many of the bonds the ECB owns but not for those with a negative yield, including a considerable pile of short-term German government debt bought by the Bundesbank as part of the programme.

Euro zone central banks have so far been making money on their bond purchases but this may change in the future and many of them, including the Bundesbank, have been making provisions against possible losses.

The ECB is expected to stop new purchases by the end of this year but it has pledged to reinvest proceeds from maturing bonds “for an extended period of time” after that.

ECB President Mario Draghi has repeated that the purpose of quantitative easing is to bring inflation back to the bank’s target of almost 2 percent, rather than making profits.

Reference Date PSPP ABS Covered bonds CSPP

Total Mar 30 -4.116 -0.019 -0.295 0.238 -4.192 Mar 23 5.476 -0.259 0.176 2.224

7.617 Mar 16 3.491 0.844 0.788 1.263

6.386 Mar 9 6.233 0.429 1.041 1.671

9.374 Mar 2 5.291 -0.078 0.526 1.400

7.139 Feb 23 3.800 -0.236 0.443 1.112

5.119 Feb 16 5.690 0.007 0.709 1.674

8.080 Feb 9 6.590 0.068 1.356 1.215

9.229 Feb 2 4.524 -0.145 -0.366 0.982

4.995 ($1 = 1.2293 euros) * The figures are calculated by subtracting holdings from the previous week’s level and are not corrected for end-of-the-quarter amortization. For more detail on the ECB's asset purchases, please click: here ($1 = 0.8131 euros) (Reporting by Francesco Canepa Editing by Mark Heinrich)

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