European governments will issue additional debt in 2023 to deal with the energy crisis and energy costs. But with the ECB cutting back on reinvestment, the pressure on the market will increase and governments will have to enlist private sector investors to buy an additional €400bn of debt.

Since 2015, when the quantitative easing program began, the ECB has been a guaranteed buyer of government bonds and a lender of last resort. After all, he absorbed in his portfolio a huge amount of new bonds issued by eurozone governments between 2019 and 2021. However, from the new year, he will begin to limit his portfolio in the first stage by reducing reinvestment from profits. all maturing bonds. It is no coincidence that the change in ECB policy coincides with the efforts of eurozone governments to mitigate the effects of high energy prices. This means that they need additional funds, so they will issue a new additional public debt. Germany, in particular, will issue record debt over the next year. Bank of America estimates that the amount of new government debt that investors will be asked to repay in 2023 will double the previous record a decade ago.

According to analysts, government bond yields will continue their upward trend next year as well.

This means that issuing authorities will have to make twice as much effort to attract investors. At the same time, they risk paying much higher yields as the ECB’s aggressive move to tighten policy and fresh rate hikes announced by Ms Lagarde last week convinced investors that another half a percent rise in borrowing costs will follow in the new year. . . German 10-year bond yields have already increased by 250 basis points during the year, while Italian bond yields have risen by more than 300 basis points, of which 50 basis points. it was just last week. Analysts from BNP Paribas, Deutsche Bank and Citigroup, which sell eurozone government debt, believe that government bond yields will continue to rise next year. BNP Paribas estimates that the sale of these bonds will increase the yield on Germany’s 10-year bonds by 45 basis points. however, reaching 2.75% in the first quarter of the year.

The bank will continue to reinvest part of the debt purchased during the pandemic for the time being. In doing so, however, it will begin cutting $5 trillion worth of bonds. euros it has accumulated in its portfolio over the years of quantitative easing by selling €15 billion worth of bonds every month from March to June. What will happen next is still unclear. Back in November, the ECB’s working group, which has contacts with the market, said that the biggest concern is the large amount of debt that investors will have to buy from the private sector. As Julian Le Beron, chief investment officer of Allianz Global Investors, points out, “it’s a fact that investors are not so eager to buy European bonds next year.” After all, Italy’s debt and its sustainability are worrisome. The yield on Italian 10-year bonds already exceeds 4% and is starting to worry investors. However, not all banks foresee further growth in profitability in the new year. JP Morgan, for example, sees them pulling back, while even BNR expects them to pull back after the initial rally. There is also hope that high yields will attract investors and, in the event of a recession, make bonds more attractive, given that these are low-risk investments.