After the large stimulus package announced in March, the ECB may take a breather in the present, “relatively calm” phase on the markets, and of moderate recovery of the euro area economy. No further measures should be expected before the summer, we think. Also because June will bring the start of corporate bond purchases, which will include issues by insurance companies, and the new TLTROs……..<\/p>\n
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Sign up for our free newsletter to receive weekly news from BONDWorld. Click here to register for your free copy<\/strong><\/span><\/a> <\/strong><\/span><\/a><\/span><\/p>\n Intesa Sanpaolo – Research Department For professional investors and advisers only<\/strong><\/p>\n While the ECB refrained from verbal interventions on the exchange rate, Draghi once again reassured the markets that the Council is ready to act using all the instruments it has in the event of an unwelcome tightening of financial conditions.<\/p>\n The ECB kept its rhetoric ultra-accommodative at the April meeting, reasserting that rates are still expected “to remain at present or lower levels for an extended period of time, and well past the horizon of our of our net asset purchases”. As was predictable, Draghi found himself having to defend the independence of the ECB, following the attacks from the German political front in the past few days, in response to which the Governor said that the Council unanimously agreed on the need to reassert and defend monetary policy choices and the appropriateness of the current stance.<\/p>\n With respect to possible future moves, Draghi reasserted that they will depend on the evolution of domestic and international data, as well as of political risks, including those tied to the referendum on the United Kingdom’s membership of the European Union. For the time being, Draghi noted that the situation seems to have stabilised, thanks to resilient domestic demand. The effects of the ECB’s interventions between June 2014 and March this year will become visible over time (and may be in the order of one and a half points, on both growth and inflation in 2015-17), and would certainly be amplified if other economic policy levers were also activated. Therefore, the Council has taken a vigilant wait-and-see stance. However, Draghi has reassured that if the external context triggers an unwelcome restriction of financial conditions, the ECB would not hesitate to act, using all the tools available to it. The tightening of financial conditions presumably includes also the movements of the euro, although Draghi again stressed that the exchange rate is not a target, almost as if to confirm the ECB’s step back on the use of negative rates to weaken the single currency. In any case, negative rates remain among the tools the ECB may resort to. The residual margin of intervention is now limited. For what concerns the possibility of less conventional measures, Draghi said that the Council did not talk about “helicopter money”, and made no further comments, although he did not explicitly rule out that the option may be discussed in the future.<\/p>\n Ahead of the ECOFIN meeting this weekend, where regulatory changes in the treatment of risk on government bond portfolios held by banks will be discussed, Costancio said that some adjustments are desirable, but that the issue should be debated within the framework of the Basel working groups, and cannot be conditioned to other decisions, i.e. to the introduction of the third pillar of the Banking Union.<\/p>\n The ECB will seek push as hard as it can on the corporate bond purchase programme. The operational details specify that the ECB will intervene on both the primary and secondary markets, and include issues from insurance companies, but not from investment funds. This expands the pool of eligible assets to 412 billion euros. The ECB will also purchase all maturities between six months and 30 years, in shares of up to 70% of each individual issue, as is the case for covered bonds. Purchases by issuer groups will be made based on a benchmark, and therefore gauged based on the weight of individual issuers in the benchmark. The ECB was thus fully reassuring. It is now a waiting time, hopefully the data and geopolitical risk will evolve for the best.<\/p>\n Appendix Important Disclosures<\/strong> Source: BONDWorld.ch<\/p>\n","protected":false},"excerpt":{"rendered":" After the large stimulus package announced in March, the ECB may take a breather in the present, “relatively calm” phase on the markets, and of moderate recovery of the euro area economy. No further measures should be expected before the summer, we think. 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