large amounts of foreign exchange risk on their balance sheets, particularly when the direction of exchange rate movements might be less predictable than during the run - up to the launch of a major monetary policy measure, such as asset purchases. returns on us treasuries adjusted for foreign exchange risk, however, have fallen steadily as the government bond yield curve in the united states has flattened. you can see this on the righthand side. since about mid - 2017 the yield of a hedged ten - year us treasury has been below that of its german equivalent. there are two factors, in my view, that might help explain the observed persistence of capital 4 / 7 bis central bankers'speeches flows. the first has to do with the “ traditional ” stock effect of asset purchases. 5 central bank asset purchase programmes effectively constrain the supply of bonds available to private price - sensitive investors. so, the share of outstanding central government bonds held by the private sector – the so - called “ free float ” – has declined measurably as a result of our cumulative purchases, also when taking into account the considerable amount of buy - and - hold investors. the implication is that some euro area fixed income securities are increasingly hard to come by, or come with a price tag unattractive for more short - term orientated investors. this may incentivise some market participants to roll over their international asset allocations instead. the governing council at its meeting yesterday reaffirmed its intention to reinvest the principal payments from maturing securities purchased under the app for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. this will reinforce the stock effect channel and, as a result, is likely to also help to mitigate abrupt changes in the direction of capital flows. the second factor that may help explain the persistence of cross - border capital flows relates to our forward guidance. by clearly spelling out the governing council ’ s reaction function, and the sequence by which we would adjust our various policy instruments, markets were able to better anticipate our actions based on the progress made towards a sustained adjustment in the path of inflation consistent with our inflation aim. they understood that, even as we were gradually reducing the monthly pace of purchases in response to growing confidence in the convergence of inflation towards our aim, our key policy rates would remain at current levels “ well past ” the horizon of

##back effects. this will help to maintain the financial conditions necessary for us to achieve our price stability objective. unconventional monetary policy and international capital flows let me start by briefly recalling the empirical evidence on the impact of the ecb ’ s policies on cross - border capital flows. my first slide illustrates this impact quite clearly for the euro area. 1 / 7 bis central bankers'speeches there was a striking turnaround in capital flows, from net inflows to net outflows, that started in mid - 2014, just when we had announced our credit easing package and when expectations were gradually building among market participants that we would also begin purchasing government bonds. at their peak in the spring of 2016, net capital outflows – measured here in terms of 12 - month moving sums – reached nearly 5 % of euro area gdp. never before in the history of the euro area have capital flows been so high. you can also see that virtually all net capital outflows have been concentrated in purchases of foreign long - term debt securities. that is, large - scale purchases of sovereign bonds by the ecb encouraged many investors to rebalance their portfolios towards the closest substitute – bonds issued by other sovereigns. 3 these capital outflows are likely to have added to downward pressure on global bond yields. 4 for quantitative evidence, see cœure, b. ( 2017 ), “ monetary policy, exchange rates and capital flows ”, speech at the 18 jacques polak annual research conference hosted by the international monetary fund, washington, 3 november. on the right - hand side you can see that the start of the app, and prior expectations thereof, coincided with a measurable decline not only in euro area overnight index swap term premia but also in term premia in the united states. put simply, increased demand for foreign securities increased their prices and thereby lowered their yield. the question, then, is whether the approaching end of net asset purchases in the euro area might see a sudden waning in the support for global bond yields, and thereby risk amplifying 2 / 7 bis central bankers'speeches prevailing upward pressure on global sovereign bond yields stemming from the ongoing tightening by the us federal reserve. if such adjustments were abrupt, they could risk causing broader capital reallocations, including from emerging market economies, and force a revaluation of global equity prices, with potentially adverse impacts on the financial conditions consistent with our primary mandate. the gradual decline in net capital outflows since their peak