ECB bond purchase programme to continue through 2016

The QE programme is progressing as planned by the ECB. A scarcity of eligible bonds might have abated after the rise in bond yields. The ECB is expected to frontload its asset purchases in June and July, but the central bank is unlikely to act against the rise in market volatility as long as monetary conditions do not tighten dramatically. 

"The ECB is expected to keep a steady hand and also consider it likely that bond purchases will go on even after September 2016 in order to bring inflation closer to target. The main refi rate to remain unchanged at 0.05% over the forecast horizon and the deposit rate to stay unchanged at -0.20%", says Nordea bank.

The recent huge jump in yields was certainly a wake-up call that the ECB's purchases have not subdued volatility for good and yields can actually move both ways. The rapidity of the move should act as a deterrent for further aggressive long positions, especially as Draghi warned markets should get used to the higher volatility. 

The fact remains that the ECB remains committed to buying bonds for still a long time, while the cash flow profile turns very positive for bonds in July as new issuance falls and large redemptions loom. 

As a result, a renewed fall in yields is expected over the summer, followed by a very gradual increase throughout the remainder of the forecast horizon, as the Euro-area recovery proceeds and US yields head higher.