Lower for longer | Calamatta Cuschieri

Please don’t call it a taper – ECB reduces pace of monthly bond purchases but keeps program open-ended

Mario Draghi vehemently denied any sort of taper
Mario Draghi vehemently denied any sort of taper

Malta might have been on holiday yesterday but the markets set their sights on the last ECB meeting of the year, eagerly awaiting the ECB’s anticipated change of stance with regards to its current asset purchase program. The wait was worth it – the ECB extended the program for longer than expected, reducing the monthly allocation to €60 billion instead of the current €80 billion.

Mario Draghi vehemently denied any sort of taper – something which gradually ‘tapers’ to 0 – was even discussed at yesterday’s ECB meeting, shifting the focus on to the fact that QE is still open-ended and that inflation will likely remain weak even after the soft deadline of 2017.

European sovereign yield curves steepened as investors bought up the short end after the ECB signalled it would be buying one year bonds and also bonds yielding less than the ECB’s own deposit rate – currently at -0.4% – albeit on an exceptional basis only. The long end was more of a mixed bag. Yields initially popped higher, retreated somewhat, and now seem to be maintaining some upward momentum.

All-in-all, the ECB reinforced its commitment to be ever-present in the face of what it still considers to be a negatively-tilted balance of risk, despite improvements in the inflation outlook which are mostly due to changes in energy prices. Unofficial sources have also said some Governing Council members proposed extending the current Quantitative Easing programme by 12 months. ECB spokespeople declined to comment, indeed President Draghi did not mention this being tabled and said there was a “very, very broad consensus” for the extension as announced yesterday.

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investments Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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