Eurosystem Balance Sheet Shrinkage Proceeding Smoothly So Far

The Eurosystem has shrunk its balance sheet by €2 trillion since mid-2022, releasing government bonds back to the market. This has reduced the Eurosystem's footprint in bond markets.

Households and foreign investors have stepped in to purchase many of the bonds, absorbing a considerable amount of net issuance.

Bond market functioning has remained smooth during the Eurosystem's balance sheet reduction, with no deterioration in liquidity or spike in volatility.

The increased availability of high-quality collateral has helped improve repo market functioning and monetary policy transmission.

Gradual and predictable balance sheet reduction, along with strategic adjustments by issuers and dealers, have supported orderly market conditions so far.