ECB, tinkering not tapering - Nomura

Analysts at Nomura explained that the ECB extended the APP by nine months to last until at least December 2017, with the pace of purchases reduced to EUR60bn starting from April 2017.

Key Quotes:

"On technical parameters, the ECB extended the maturity bucket and removed the deposit rate floor constraint. The December projections also showed that the inflation forecast for 2019 remained outside the target range for the ECB, signalling that there could be need for more accommodation.

Overall, today’s announcements in combination with President Draghi’s comments indicate the ECB’s commitment to continue supporting the economic recovery beyond end-2017." 

Strategy:

"The broadening of the maturity range of the PSPP and the removal of the deposit rate floor help our steepening view. The former eases the issuer restriction for smaller countries like Portugal, although it could still be reached before June 2017.

We stick to our 2f5s30s steepener and extend the target on our 5s30s ASW box (long 5y cash) from -35bp to -45bp. We see a risk of flattening pullbacks in the next few weeks, but suggest using such flattening as opportunity to add to steepening views.

We look for opportunities to enter a box with a peripheral flattener vs. a core steepener, where Germany vs Spain would be our preferred choices, but this trade has already moved a long way today."