November 22 (Reuters) – Demand for eurozone government debt from domestic buyers squeezed out by European Central Bank purchases is expected to be strong enough in 2023 to absorb heavy debt sales, just as the ECB could still step back as a buyer. key, JPMorgan said in a note.
JPMorgan said it expects gross government bond issuance after taking into account ECB purchases in the bloc to reach 861 billion euros ($884 billion) in 2023 without the the ECB will reduce its huge bond holdings and to 958 billion euros if it goes into debt. stopped.
This is a sharp increase from the 627 billion euros that JPMorgan expects at the end of 2022, as states fund energy support measures.
The ECB had been absorbing government debt issuance in the bloc since it began buying in 2015, so a surge in issuance just as it is pulling out has raised questions about who will step in.
Since the second quarter of this year, when the ECB ended its emergency pandemic bond purchase programme, domestic credit institutions, including banks and money market funds, have stepped in as buyers in France, Italy, Spain and Greece, JPMorgan’s memo said on Tuesday.
He added that other domestic investors have become buyers in most eurozone debt markets.
JPMorgan analysts expected demand to rise further next year as bond yields, after soaring this year as inflation soared and the ECB raised interest rates, attracted investors. buyers.
“We believe that the recovery in demand would be sufficient to absorb the strong emissions of 2023 and avoid any significant widening of intra-EMU spreads,” rate strategists Elisabetta Ferrara and Aditya Chordia wrote in the note, referring to member states. with extra yield. pay compared to the benchmark Germany.
JPMorgan said demand from pension funds and insurers, which had reduced their investments in government bonds since the pandemic, could also increase next year, noting that even modest demand could be enough to support the issuance of long-term debt.
Lower bond market volatility expected by JPMorgan next year could also attract foreign buyers, who have become net sellers of debt during the ECB’s bond-buying period, the bank said.
However, the demand could easily be challenged due to political risks, ECB policy error or increased market volatility, JPMorgan added.
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(Reporting by Yoruk Bahceli; editing by Dhara Ranasinghe and Emelia Sithole-Matarise)
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