The Irish Government Bond Market and Quantitative Easing

John Larkin, Pj Anderson and Sean Furlong
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John Larkin: Central Bank of Ireland
Pj Anderson: Central Bank of Ireland
Sean Furlong: Central Bank of Ireland

Quarterly Bulletin Articles, 2019, 78-100

Abstract: Between September 2014 and the end of 2018, under the ECB’s Asset Purchase Programme (APP), the Eurosystem purchased over €2.5 trillion worth of securities. By the end of December 2018, over €30bn of Irish government bonds, a significant portion of the Irish government bond market, had been purchased under the programme. As might be expected after such an event, the bond market has undergone a number of changes. We examine these changes under three key themes. Firstly, we look at the impact on yields. Secondly, we look at the market structure in terms of the duration, the cost of Irish government debt and the change in the structure of the investor base. Finally, we examine the impact on the liquidity of Irish government bonds over the period. We present strong evidence that announcement effect of the APP caused a compression of Irish bond yields. This has contributed to financing conditions that indirectly support increased issuance of Irish sovereign debt at lower interest rates, which in turn has reduced Ireland’s debt servicing costs. The maturity profile of Irish government debt has also been extended. Finally, we find little evidence that liquidity conditions deteriorated over the period, contrary to expectations when the programme was announced.

Date: 2019-04
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