ECB: to continue buying government bonds - BTMU
|Analysts at Bank of Tokyo Mitsubishi explained that while the ECB held off from extending QE today, the key was signalling to the markets that this was still likely through announcing ECB staff committees to assess the best measures to take in order to ensure the ECB can maintain its effective monetary stance.
Key Quotes:
"Euro buying has in part been fuelled by the comment from Draghi that the Governing Council did not discuss extending QE. However, the very fact that it agreed to set up these staff studies was in itself an acknowledgement that QE extension was a discussion for a later date.
Essentially Draghi has signalled to the markets that it is looking at ways to continue buying government bonds. The evaluation of options to “ensure a smooth implementation of our purchase program” will clearly assess which of the options available should be taken. Those options are well known – scrapping the self-imposed rule of not buying securities that yield below the deposit rate of -0.4%; abandoning the capital key weightings for sovereign security purchases; and raising the single issuance limit from 33% to say 50%.
Whatever the study concludes (we suspect the ECB will abandon the issuance limit and/or scrap or alter the self-imposed rule, but maintain the capital key weighting system) the implication is that QE can be extended beyond March 2017 without compromising purchases. That is the key take-away from today not the fact that they didn’t discuss an extension!"
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