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The European Central Bank announced plans to buy government bonds from national banks. Quantitative Easing, 60 billion euros a month. Although ultimately I am trying to make a decision on what this will likely do to the exchange rate, I am currently at the point where I don't know what the national banks will do with all of the financing.

What does the ECB expect will happen to national bank bond yields with their buying? How abnormal in amounts would their buying be than from investors buying the government bonds?

What does the ECB expect the national banks will do with all of the new "demand" for their bonds? Do more commercial lending to spur the economy? I also didn't get the impression that there is any actual new productivity taking place to really grow any of the individual country's economy no matter how much additional lending takes place. Opening up the potential to a wave of defaults, presupposing that more commercial lending would take place.

If anyone could shed some light on this, that would be great. Ideally not really opinion based, but more so in line with something official or some school of thoughts.

For analogies' sake, I really couldn't see the US Federal Reserve buying Montana bonds to spur commercial lending in Montana and thinking this would help the economy in Montana.

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This question is now very relevant, with the ECB committing to buy over 1 trillion Euros of bonds in 2020. My understanding is that the ECB buys open market bonds, thus pushing their value up.

The goal, therefore, is to stimulate the bond market, and thus the economy.

In practice, I am still looking for information on what exactly the ECB buys with all that money.

Simple official explanation here

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  • $\begingroup$ Will stimulating the bond market increase production when production is currently reduced, not by financial reasons, but by a pandemic? Maybe the prospect of more QE will stimulate people to stop the pandemic to prevent the QE? $\endgroup$
    – Criticizing Israel not allowed
    Commented Nov 27, 2020 at 13:18
  • $\begingroup$ fortunately I am still around and have been watching the credit markets for the last 6 years! Central banks like the ECB buy the bonds, and it relies on member states (and corporations) to issue the bonds - "issue" being to literally write on a piece of paper that they will pay x% over a period of years and getting billions of dollars in return. When the ECB purchases anything, it receives the asset and the recipient receives Euros which did not exist prior to that transaction. So it is more about what the recipient does with the money. The ECB has few controls over what it actually purchases $\endgroup$
    – CQM
    Commented Nov 29, 2020 at 4:53
  • $\begingroup$ @CQM thanks for your insight. So to give the answer some depth, do you now know 1)Which bonds the ECB selects, and 2)What happens to the money paid in interest back to the ECB? $\endgroup$
    – MrMartin
    Commented Nov 30, 2020 at 11:07

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