Cypriot bonds in Eurosystem steady at €6.76 billion

The value of Cypriot bonds held by the Eurosystem remained steady at €6.76 billion at the end of April, as the European Central Bank (ECB) persists in its effort to deleverage its balance sheet, aligning with its restrictive policy to reduce inflation.

As of April, the cumulative value of Cypriot bonds through the Public Sector Purchase Programme (PSPP) and the Pan-European Personal Pension Product (PEPP) accounted for 29 per cent of the total general government debt.

Notably, the PSPP portfolio’s valuation of Cypriot bonds was sustained at €4.29 billion, unchanged due to the absence of bond maturities during this period. The last adjustment in the PSPP holdings—a €285 million reduction—occurred in July 2023. Furthermore, the weighted average maturity of these bonds stands at 7.62 years.

In a significant policy move, the ECB discontinued reinvestments from bond maturities starting August 2023, effectively absorbing liquidity from the market. This strategy bolsters the broader initiative to mitigate inflationary pressures.

The broader asset purchase Programme (APP) also reflected a contraction, with its total value diminishing to €2.9 trillion by the end of April, a decrease of €34.4 billion. This reduction primarily stemmed from €28.7 billion in bond maturities under the PSPP.

Meanwhile, the valuation of Cypriot bonds under the PEPP remained constant at €2.47 billion as of the end of March, with no net acquisitions recorded in the February-March period. The bonds under PEPP displayed a slightly longer weighted average maturity of 7.9 years.

The overall PEPP balance declined modestly to €1.66 trillion at the end of March, a €43 million drop. This decrease was almost entirely due to a €42 million reduction in public sector assets, which lowered their total to €1.61 trillion.

In a recent announcement on December 14, 2023, the ECB’s board of directors declared that it would continue full reinvestments of maturing amounts until the first half of 2024. Following this period, the ECB plans to taper the PEPP portfolio by an average of €7.5 billion each month and intends to cease reinvestments altogether by the end of 2024.