EGBS: ECB EGB Portfolio Runoff Progressing; German Free Float Set To Increase
ECB monetary policy portfolio holdings declined by E20.4bln in September, to a total of E3,603bln. This was below the 2024 average of E25.9bln per month and the YTD average of E36.1bln per month. Total PSPP holdings were E2,120bln as of the end of September, while PEPP holdings were E1,483bln.
- As of Q1 2025 (using data from the ECB, IMF and Eurostat), the ECB held 38% of outstanding Dutch bonds, the highest proportion across major Eurozone countries (down from 46% in Q4 2022).
- The ECB held just under 33% of outstanding German bonds as of Q1, down from 41% in Q4 2022. The combination of increased German issuance (related to higher defense and infrastructure spending) and ongoing passive QT is expected to continue adding to the free float of German bonds in the coming years. This has underscored some sellside expectations for further underperformance of (particularly long-end) German paper versus swaps going forward.
- The ECB holds a relatively small proportion of French and Italian bonds (~21% and ~20% as of Q1 respectively).
- Consolidated Q2 debt data will be released in the next few weeks, after which we’ll provide an update on the above.
- Passive run-off of EGB holdings remains very gradual, and Executive Board member Schnabel recently noted that "excess liquidity has come down somewhat more slowly than expected as a result of some autonomous factors”. The combination of gradual portfolio run-off, ample excess liquidity and low usage of standard refinancing operations means updates on the ECB’s longer-term structural refinancing operations remains some way off.
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US STOCKS: Early Equities Roundup: Reversing Fri's Sales, Nasdaq Marks New High
- Stocks are gaining early Monday, the tech-heavy Nasdaq outperforming as it climbed to a new record high in the first half. Still well off Friday's high print of 45770.20, the DJIA trades up up 81.16 points (0.18%) at 45483.85, S&P E-Minis up 24 points (0.37%) at 6513.25, Nasdaq up 166.6 points (0.8%) at 21864.93 vs. 21885.62 high.
- Information Technology and Consumer Discretionary sector shares led gainers in the first half, semiconductor shares rebounding from better selling last week: Broadcom +4.58%, Oracle +2.84%, Synopsys +2.70%, Palantir Technologies +2.61% and NVIDIA +1.98%.
- Consumer Discretionary sector was buoyed by: Booking Holdings +2.23%, Wynn Resorts +2.18%, Amazon.com +1.99% and DoorDash +1.75%.
- On the flipside, Real Estate and Health Care sector shares led decliners in the first half. Investment trust shares weighed on the Real Estate sector with SBA Communications -4.44%, Crown Castle -4.19%, American Tower -4.08% and Weyerhaeuser-2.45%.
- Meanwhile, pharmaceutical shares weighed on the Health Care sector: Moderna -3.94%, Regeneron Pharmaceuticals -3.23%, Dexcom -2.76% and CVS Health -2.32%.
EUROPEAN FISCAL: Germany: "Autumn of Reforms" Scheduled To Start
The policy process for fiscal measures and structural reforms in Germany appears to be starting to take shape according to reports filtering through over the weekend. This comes amid the government's "autumn of reforms" being set to start this week, and means a) income tax changes, b) social security net cuts and c) pension system reform are all being discussed if not in the pipeline. The backdrop remains weak growth, a E30bln+ gap in the 2027 budget as well as right-wing AfD polling close to the largest party nationally. Meaningful progress on the widely heralded "bureaucracy reforms" remains to be observed, and the coalition takes split views on how to proceed.
Details below:
- On pensions, ideas being floated include the abandonment of retirement with 63 years (which is in place for some age groups) but other representatives proposed raising the retirement age to 70 years more altogether.
- On income taxes, finance minister Klingbeil as well as a single CDU budget policy spokesman have both previously floated increases for high earners but this was met with wide criticism by other CDU representatives, referring to the coalition agreement, which makes no mention of this.
- A commission for deeper welfare state reform ("modernization" and "bureaucracy reduction") is set in place and targets publishing proposals by the end of year. Chancellor Merz plans E5bln of savings in unemployment benefits (around 10% of respective expenditure) through such a system reform. Labour minister Bas (SPD) has strongly argued against the proclaimed magnitude of savings but terms between her and Merz eased afterwards again.
OPTIONS: Expiries for Sep09 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1530-50(E1.2bln), $1.1600(E519mln), $1.1650-70(E1.0bln), $1.1685-05(E2.3bln), $1.1750(E835mln), $1.1790-00(E1.2bln), $1.1885-90(E994mln)
- USD/JPY: Y145.85-00($1.4bln), Y150.00($1.1bln)
- GBP/USD: $1.3595-20(Gbp1.0bln)
