* Analysts- ECB bought less German debt than rules allow in
* Average maturity of German bonds purchased for ECB QE
* Sign of scarcity of eligible German debt
* German bond scarcity may provide incentive for ECB taper
* Graphic: reut.rs/2puNpq2
By Dhara Ranasinghe
LONDON, May 9 As fading political risks and a
stronger economy fuel talk that the ECB may scale back its
massive monetary stimulus, analysts say data highlighting a
scarcity of eligible German bonds for purchase under the scheme
could help sway the debate.
Based on ECB bond-buying data published last week, some
analysts calculate that the European Central Bank bought roughly
400 million euros fewer bonds in Germany in April than its rules
These figures exclude other than government debt and adjust
Germany's target to strip out Greece, which is not eligible for
the 2.3 trillion euro ($2.5 trillion) scheme.
The shortfall raises questions about how close the ECB is to
hitting its bond-buying limits in Germany, the euro zone's
benchmark issuer and the biggest source of bonds under the
It also comes as investors shift their focus to a potential
gradual reduction, or "tapering", of the ECB's quantitative
easing (QE) programme and to U.S. Federal Reserve rate hikes now
that political risks linked to France's elections are fading.
"It was by far the largest deviation, at least for Germany,
and for me suggests that on top of the political stress and
smoothing of purchases, there are scarcity constraints for the
Bundesbank," said Pictet Wealth Management senior economist
"What it means is that the ECB has to be very cautious with
its exit and if they don't taper within less than six months (of
ending the programme) something might have to give. That's where
the data for April is so interesting."
The stimulus programme is due to run until the end of 2017.
Bank calculations based on the data also show that in just
six months, the average maturity of monthly German debt
purchases by the ECB has dropped to under five years from more
That suggests a shortage of longer-dated eligible debt is
forcing Germany's Bundesbank, which acts on behalf of the ECB,
to take advantage of recent rule tweaks to buy more
While that shift was expected after a change allowing the
ECB to buy bonds yielding less than the minus 0.40 percent depo
rate, the speed at which the Bundesbank put that to use has
taken markets by surprise.
TIME TO TAPER?
ECB asset purchases are based on the so-called capital key
-- it buys a country's bonds in line with the size of its
economy -- making Germany the biggest source for the scheme.
Many banks expect the ECB to push up against a self-imposed
limit that prevents it from holding more than 33 percent of a
country's eligible bonds around year-end.
In reality, the central bank can be flexible and smooth out
its purchases and in the past it has shown it can get around
The ECB has already deviated from the capital key in Ireland
and Portugal, where it is running out of bonds to buy.
"The deviations elsewhere have been consistent except for
Germany," said ABN AMRO senior fixed income analyst Kim Liu.
He also estimated the ECB deviated from the capital key in
Germany by around 400 million euros in April when excluding
corporate and covered bond purchases and adjusting for Greece.
Liu said the average maturity of monthly German purchases,
which ABN and others calculate at 4.72 years for April, is also
something to watch carefully.
"This means that the average maturity of monthly German
purchases remains much lower than those of other countries and
that the Bundesbank continuously is forced to buy short-dated
bonds with yields that are below the ECB's deposit rate," he
The bond scarcity in Germany shows that the ECB would
struggle to extend the scheme without further changes to its own
The monetary policy debate in the eurozone has also changed
over the past six months.
On Monday, board member Yves Mersch said the ECB was close
to replacing its negative view on whether the euro zone economy
would reach growth targets with a neutral one.
ECB monthly asset purchases fell by 20 billion euros to 60
billion euros in April, while money markets price in roughly a
70 percent chance of a rate hike in early 2018.
"The ECB can always get around its rules, it has the
flexibility on whether to buy central government or local
government or agency debt to fulfill its quotas," said Marchel
Alexandrovich, senior European economist at Jefferies.
"But the longer QE goes on, the more the ECB will have to
think about changing the rules again ... And the issue now is
the willingness to carry on with QE."
(Graphic by Nigel Stephenson and Ritvik Carvalho; Editing by