Eurosystem Will Likely Become Single Largest Holder Of Bunds: HSBC

As regulatory-driven investment forces a more passive investor base into the bund market, the Eurosystem will become the single biggest holder of bunds by the end of this year, predicts HSBC. Bert Lourenco points out in his July 12 research piece titled “Bunds-hostage to the ECB” that as long as QE persists and trading volumes and yields fall, signs of stress in the bund market will likely worsen.

Demand for bunds from German pension sector to persist

Lourenco believes that following the 2008 crisis, monetary policy has continued to push down on all forms of premia, and although bond returns have been very healthy, the ability for smaller or leveraged investors to participate in the markets has been impaired, effectively...