Cyprus government bonds worth €7.12 billion held in Eurosystem portfolio

The value of Cypriot government bonds held in the Eurosystem’s portfolio, through the Public Sector Purchase Programme (PSPP) and the Pandemic Emergency Purchase Programme (PEPP), has reached €7.12 billion and is now undergoing a gradual reduction.

Based on available data, the total purchases of Cypriot government bonds by the Eurosystem represent approximately 29.5 per cent of the outstanding debt of the Republic of Cyprus.

According to the European Central Bank (ECB) data, which was reported by the Cyprus News Agency (CNA) on Friday, the value of Cypriot government bonds acquired mainly by the Central Bank of Cyprus (CBC) and the ECB through the PSPP reached €4.58 billion at the end of June, with net purchases of Cypriot bonds amounting to €8 million during the same month. The remaining weighted average maturity of these bonds stands at 9.12 years.

It is worth noting that net new purchases under the PSPP were terminated in June 2022, and since early March, the Eurosystem has been partially reinvesting the amounts from bond redemptions.

Moreover, the ECB has recently announced that the broader Asset Purchase Programme (APP), of which the PSPP is a part, will be reduced at a measured and predictable pace, as the Eurosystem will not reinvest all amounts from bond redemptions. The reduction is expected to average €15 billion monthly until the end of June 2023, with the pace to be determined over time.

As of the end of June, the total balance of the broader purchase programmes stood at €3.18 trillion, with a decrease of €15.03 billion in May. Out of the total balance, €2.53 trillion corresponds to purchases made through the PSPP.

Turning to the PEPP, data indicates that the total Cypriot bonds held in the balance sheets of both the Central Bank of Cyprus and the ECB amounted to €2.54 billion by the end of May.

In addition, Net purchases for the period of April and May reached €500 million, and the weighted average maturity of these bonds stands at 8.51 years.

Net new purchases under the PEPP were discontinued as of March 2022, and the amounts of bonds maturing until the end of 2024 will be fully reinvested, as confirmed by the ECB’s Governing Council in its latest meeting to avoid any disruptions to the appropriate direction of monetary policy.

Given the ECB’s restrictive monetary stance since last July, with nine consecutive interest rate increases aimed at containing inflation, Pimco, a prominent investment management firm, estimates that the ECB may begin to reduce the PEPP portfolio, possibly as early as 2024.

The developments in the Eurosystem’s portfolio and the ongoing reduction of Cypriot government bonds are closely monitored by economic analysts in Cyprus as they can have implications for the country’s debt management and financial stability.