Enhanced QE - The ECB's active balance sheet

If you try to easily explain the actual workings of the ECB QE program (actually the APP Asset Purchase Program), you understand why there is a 500 page manual for implementation.  A 60 billion EUR monthly program that if it last until at least September 2016 will increase the balance sheet of the ECB by 50%. The program will be 250% of the annual net issuance of all countries in the euro system. By comparison, QE3 was only 85% of net new issuance.

Of course, the scope and idea of a ECB balance sheet is complex since the sovereign bonds will be purchased by each country's central bank. These central banks will take the losses if there is a decline and eventually there will be losses. The size will matter. The program will include sovereigns, agencies, corporates and ABS.  It will change credit markets much more than the US QE programs.

There is quantitative easing but there is also enhanced quantitative easing based on the asset that are purchased by the central bank. If there is market segmentation or a portfolio balance effects, there will be different market responses based on the assets purchased. The action by the ECB is expected to have a portfolio balance effect especially with the purchase of sovereign debt. The relative purchase of debt for a particular country will impact credit spreads and effect fiscal discipline. 

With the size and scope of this program, there will be spill-over into all global bond markets. The monetary bazooka has been taken out and is being used. Asset price inflation will be on the rise in Europe. The trend from the beginning of the year will not change with this action.