speeches you can see that while in the united states a combination of macroeconomic, policy and foreign shocks were driving yields higher, in the euro area domestic shocks were appreciably more moderate, and foreign shocks were even putting downward pressure on yields. this happened despite a broadly comparable economic backdrop. stock effects might therefore have helped to insulate the euro area from foreign spillovers and to temper domestic shocks. bond yield developments relative to the overnight index swap ( ois ) curve corroborate this view. you can see from the left - hand side of the next slide that in the euro area, at both two - year and ten - year durations, the spread between german bunds and corresponding ois rates turned negative as we started implementing the asset purchase programme and consistently and gradually widened over time as the implementation of our asset purchases proceeded. this is a crude but reliable gauge of the effect of stocks on the term premium. 13 / 15 bis central bankers'speeches the reason is that, if changes in the bund term premium were being driven by risk factors alone – say, higher inflation expectations or uncertainty about monetary policy – we would expect the bund - ois spread to be fairly constant. such factors typically affect both markets as swap dealers use positions in bunds to hedge interest rate risk on swaps. but the fact that the spread is widening over time suggests that it is not being driven by common factors, but rather by factors specific to the bund market. the most plausible candidate for a secular effect of this kind is supply - demand effects induced by a shrinking free float. 12 in the united states, by contrast, as you can see on the right - hand side, the ten - year spread was negative at various points during the three quantitative easing programmes, but there was no persistent widening as we have seen in the euro area, suggesting a role for factors other than bond scarcity caused by central bank interventions. conclusion so what are the implications of all this for future monetary policy? the non - linear nature of the stock effect implies that the amount of purchases needed to deliver a given compression of the term premium is likely to fall over time as the acquired stock of assets increases. once the “ crossover point ” has been passed, additional purchases become less necessary to contain the term premium at low levels. with the current share of the bund free float constituting only a small fraction of the total outstanding, we can be confident that we have passed this threshold in the euro area

consider the example of an adverse demand shock, shown on the right - hand side – that is, investors will want to sell bonds as the economic outlook improves and expectations of higher rates mount. you can see that the price impact of such a change in demand is likely to be more contained than in a situation where supply is greater. the reason is that any new supply would be absorbed with smaller price changes, given the scarcity of the underlying asset. the persistence of asset purchase programmes : evidence both of these stylised representations are supported by the data. on my next slide you can see that, as our purchase programme has progressed, we have indeed seen a shift towards investors with a higher reservation price as marginal seller to the eurosystem. we are now increasingly purchasing assets from pension funds and insurance companies rather than from non - residents, who are less likely to have a statutory need for euro area government bonds. the implication is that our purchases are likely to have become more effective over time. 7 / 15 bis central bankers'speeches on the next slide you can see how the cumulative effect of these purchases on private bond supply has created the conditions for strong stock effects. what you can see here is an estimate of the share of outstanding central government bonds held by the private sector – the so - called “ free float ” – for three euro area countries that investors consider safe. 8 / 15 bis central bankers'speeches the free float is constructed by computing the fraction of outstanding bonds that is held neither by the eurosystem under the public sector purchase programme nor by foreign central banks as part of their foreign exchange reserves. in each case the free float has shrunk significantly since our asset purchase programme began. this is especially the case for german bunds, which is of particular importance for the euro area as bund prices effectively determine the quasi - risk free curve in the euro area. according to our estimates, less than 10 % of the outstanding stock of german bunds might currently be in the hands of private investors. but this estimate needs to be treated with caution as it relies on a number of assumptions regarding the allocation of overseas foreign exchange reserves. as my next slide shows, the drop in the free float has had a significant impact on price dynamics. what you can see here is the empirical relationship between the bund free - float and the term premium investors require for holding long - term bunds. we exclude here the period around the financial and sovereign debt crises. 11 9 / 15 bis central