The ECB today provided more details about its asset-backed securities (ABS) and covered bonds purchase programmes but gave no encouragement to forecasts that it will soon begin buying government bonds on a large scale. This may reflect a judgement that its actions since June coupled with a weaker exchange rate have delivered sufficient stimulus for now. More likely, the Governing Council remains deeply split on “full” QE.

The most important new information today was President Draghi’s statement that the “potential universe” of the ABS and covered bonds programmes is up to €1 trillion. The QE programmes in the US, Japan and UK have resulted in the respective central banks owning 19-26% of the stock of central government securities. Similar ECB ownership of the ABS / covered bonds universe would imply buying of €200-250 billion in total – lower than many estimates and equivalent to only 2.1-2.6% of annual GDP.

The ECB could buy a higher proportion of the outstanding stock and the universe is likely to expand as the central bank bids up prices. The former possibility, however, may be limited by liquidity considerations while the latter will take time.

With the new targeted longer-term refinancing operations (TLTROs) likely, at best, to offset the expiry of the 2011 / 2012 three-year repos over the next six months, ECB balance sheet expansion is likely to prove slow and it remains doubtful that President Draghi’s aim of an eventual return of assets to the early 2012 level – implying a rise of at least €600 billion – can be achieved without further initiatives.