Market: Record sovereign debt issuance in sight in 2023, says BofA


by Stefano Rebaudo

(Reuters) – The supply of sovereign debt in Europe is expected to approach 400 billion euros next year, a record amount, Bank of America estimated on Tuesday, which underlined that the strategy of “quantitative tightening” (QT) of the European Central Bank (ECB) risks complicating the task for issuing States.

A net supply of almost 400 billion euros “would be by far the highest figure ever recorded in this market and well above the 120 to 145 billion euros that we expect this year”, specifies the American bank in a note. .

It recalls that this sharp increase in issuance will come after a prolonged period of central bank support for the bond markets.

“The readjustment likely entails high event risks as prices move towards a new regime of higher policy rates without systematic flow support, especially for spread products,” BofA analysts write.

“This perspective also makes it much more difficult to concretely implement the ECB’s QT,” they add.

Members of the ECB’s Governing Council could this month start discussing the implementation of a quantitative tightening strategy, which aims to reduce the central bank’s balance sheet, bloated by some 4,000 billion euros in purchases of bonds on the markets in recent years.

A decision on the launch of this process could be adopted as early as December.

(Report Stefano Rebaudo, French version Marc Angrand, edited by Sophie Louet)

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