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Gross issuance will fall 3.9 percent to 863 billion euros ($916 billion) from last year’s level, according to the average of six estimates from banks. That will reduce freely tradeable debt. With the ECB’s quantitative easing already sucking 60 billion euros a month from the market, any possible expansion of that program on Thursday may also begin to crimp trading in 2016.
“We certainly see a turnaround in debt issuance which doesn’t make it easy for the ECB to achieve its target,” said Christian Lenk, a rates strategist at DZ Bank AG in Frankfurt. “The universe of bonds available for the ECB is not growing into the sky.”
Public-budget deficits are narrowing across the euro area because of austerity measures, reducing the flow of new bonds into the market. Since QE is a strategy to buy and hold, investors are reviving concerns they had in early 2015 that the ECB might struggle to find sellers. That may damp liquidity and make prices more volatile.
DZ Bank forecasts euro-region issuance will fall to 860 billion euros, the least since 2012, from about 895 billion euros in 2015. The German bank’s strategists said if interest rates and QE’s parameters remain relatively unchanged, then the ECB will have acquired all eligible debt by November 2016. [...]
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