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22 Jan 2015
Draghi has plenty of scope for surprises – BBH
FXStreet (Barcelona) - The Research Team at Brown Brothers Harriman note that the recent speculation regarding the size of the ECB QE program has failed to provide any information on the duration and other key elements of the program, and hence Draghi has plenty of scope to surprise the markets in his speech later today.
Key Quotes
“Today is all about the ECB. The press claims to have access to people or documents that have the ECB buying 50 bln euros of bonds a month. The duration of the program is not clear. There was a conflict in the media. Some claimed that the program would last a year. Others claimed it would last until the end of 2016.“
“Aside from duration, other key elements of the program were apparently not leaked. These include the pooling of risk. Specifically, are the bonds kept on the ECB's balance sheet or the national central banks. Creditors and debtors are aligned on different sides of the issues. Also, what instruments can be bought? Should bonds with a negative yield be purchased? What about bonds below investment grade? What are the maturity guidelines? The point is that there are many moving parts, and there is plenty of scope for surprises.”
“There is some speculation that the ECB could push its deposit rate more into negative territory and/or cut the 30 bp emergency lending rate. The focus has been almost exclusively on sovereign bonds, but what of the EU and EIB bonds? We had suggested foreign bonds (US Treasuries), but Draghi dismissed this as too much like intervention.”
Key Quotes
“Today is all about the ECB. The press claims to have access to people or documents that have the ECB buying 50 bln euros of bonds a month. The duration of the program is not clear. There was a conflict in the media. Some claimed that the program would last a year. Others claimed it would last until the end of 2016.“
“Aside from duration, other key elements of the program were apparently not leaked. These include the pooling of risk. Specifically, are the bonds kept on the ECB's balance sheet or the national central banks. Creditors and debtors are aligned on different sides of the issues. Also, what instruments can be bought? Should bonds with a negative yield be purchased? What about bonds below investment grade? What are the maturity guidelines? The point is that there are many moving parts, and there is plenty of scope for surprises.”
“There is some speculation that the ECB could push its deposit rate more into negative territory and/or cut the 30 bp emergency lending rate. The focus has been almost exclusively on sovereign bonds, but what of the EU and EIB bonds? We had suggested foreign bonds (US Treasuries), but Draghi dismissed this as too much like intervention.”