How not to test your press release systems, courtesy of the European Central Bank:
08:57 09Jun10 RTRS-ECB TO ANNOUNCE SALE OF 10 BLN EUROS IN THREE-MONTH DEBT CERTIFICATES LATER ON WEDNESDAY – DOW JONES
08:58 09Jun10 RTRS-ECB TO SELL DEBT CERTIFICATES AT VARIABLE INTEREST RATES OF UP TO 1 PERCENT – DOW JONES09:06 09Jun10 RTRS-ECB OFFICIAL SAYS ANNOUNCEMENT CITED BY DOW JONES WAS A TEST MESSAGE, PLEASE DISREGARD
Whoops.
It’s odd that the ECB would choose that particular, and detailed, subject matter to test its messaging system, given that a) it’s a rather realistic idea and b) logic might dictate the use of something like “This is a test. Please ignore” when testing one’s communications.
The ECB is allowed to issue debt certificates, and has — we think — mentioned the possibility before. The analysts at Morgan Stanley (and others) certainly have:
The third option is to drain liquidity by issuing so-called ECB debt certificates. By issuing such certificates, which can have a maturity of up to one year, the ECB would enter new territory. Issuing ECB debt certificates would probably be best suited to a situation where some monetary financial institution have a structural liquidity overhang that they are reluctant to offer in the interbank market. It is difficult to assess from the publicly available data whether the deposit facility is repeatedly used by the same institutions or whether there is rotation in the banks that are depositing their excess funds with the ECB overnight. The ECB has the underlying micro data and, hence, is able to judge whether the excess reserves are structurally tied to the same institutions.
Anyway, the ECB denial was too late to stop some fresh commentary from being published.
The below is from Marc Ostwald at Monument Securities:
According to some newswires, the ECB will announce the sale of Eur10 Bln of three-month debt certificates, maturing September 13, though details are distinctly lacking. In effect this would be a substantial extension of the maturity term of its ‘sterilization’ of its purchases of ‘distressed’ non-core Euro govt debt, which makes perfect sense given that the purchase programme is a) unlikely to end anytime soon, and b) they are unlikely to reverse (sell back) their purchases anytime soon. The problematic lies with the ostensible ‘competition’ it offers to short-term core Euro debt, taken from the perspective that the interest will be de facto have to be higher than the 0.31% paid on the 7-day depos yesterday, but comes very abruptly up against the ceiling of the 0.48% yield on offer on today’s 2-yr German Schatz, with which it would effectively compete, but with a much shorter maturity (i.e. risk). One can of course go on to think about how it might be rated (in yield spread) relative to the equivalent Schatz, and of course how far in maturity terms the ECB might extend such a ‘debt certificate’ programme in the future, in so far as a) the ECB has already intimated, and b) markets are also assuming, the ECB could well hold its purchases for 2-3 years.
CONCLUSION: more confusion and disruption….. but the question is would bank capital purchasers rather not hold the ECB certificates than the short-dated Schatz, especially those fretting about the future of the Euro?
“More confusion and disruption.”
No kidding.
Related links:
How many quasi-fiscal activities can the ECB bear? – FT Alphaville
Financial comet hits FT Alphaville!!! - FT Alphaville