The monetary policy non-puzzle The second factor that may explain current bond market conditions relates to monetary policy. There are two ways in which monetary policy may help explain current bond yields. The first is through the persistent effects of asset purchases. The ECB, the Federal Reserve System and other major central banks have acquired a substantial amount of assets during the crisis.
The ECB, for its part, has bought assets worth more than € trillion under the pandemic emergency purchase programme (PEPP) alone since March last year, or nearly 12% of last year’s euro area GDP, resulting in a visible decline in the euro area bond free float (left-hand chart, Slide 8).