The first LTRO repayment opportunity is fast approaching. David has already considered how it may or may not impact European lending rates, including the chances of Eonia rising significantly if the repayment is larger than expected.
Yet as we also noted, this is hardly the key concern. Read more
Take one big pool of eurozone liquidity, insert straws and start sucking.
We’ve already opined on the chances that early-LTRO repayment will lead to a drain on excess-liquidty in the euro-area. But we argued that since it is unlikely to take more than about €200bn out of circulation, with consensus expecting about €130bn to be sent back, the effects should be muted.
But what if another straw is soon to be inserted? Read more
Negative rates, as we’ve discussed before, are a funny thing.
On the one hand they can send an immensely powerful message. On the other hand they have the power to seriously and dangerously disrupt core economic mechanisms by magnifying the physical hoarding incentive — this helps to create a negative feedback loop that ultimately crowds out capital and leads to voluntary capital destruction. Read more
Go on, pretend you’re on the governing council. Here are the data points you have to try to steer monetary policy with:
(Click to expand) Read more
An unlikely beneficiary of the fiscal fudge, perhaps. Here’s Spanish 10 year paper, the yield on which was threatening to drop back below 5 per cent on Thursday. Read more
Dear central bank of Santa,
We, the banks, think we have been really good this year. We didn’t pick on retail customers. We didn’t tell on our Libor manipulating friends. We respected our regulator parents. And most importantly we didn’t have a hissy fit that nearly brought down the global monetary system. Read more
Some Praet-prattle in the WSJ last week has put a bit of a dampener on the idea that the ECB is gonna go for a negative deposit rate in the near term. Read more
Obvious dovishness + Draghi’s admittance that the ECB is operationally ready for negative deposit rates = that. Read more
The ECB announced some updates to its General Documentation on Wednesday. The item on ABS modifications caught our eye.
The move in question was first announced last April, and it represented a toughening up of the rules around ABS collateral for borrowing from the ECB. The update therefore isn’t so much a surprise as a reminder of one of the ongoing, but less spoken about, hangovers of the crisis.
Let’s review the situation… Read more
The IMF’s desired target of a 120 per cent debt-to-GDP ratio by 2020 has been replaced by 124 per cent by the same date — thanks in large part to official creditors taking a lower interest rate on repayments from the original bailout. A lot also seems to hinge on the Greek debt ‘buyback boondoggle’, which is now well and truly on the table. Read more
About that meeting of eurozone finance ministers, ECB and IMF officials that collapsed in the early hours of this morning (at least, until Monday) for ‘further technical work’…
First: looks like our bold call was correct. Um, yay?
Second, Reuters says it has the document prepared for the meeting and circulated among the ministers. Read more
On Thursday, ECB president Mario Draghi was in Milan to give a speech at Università Bocconi. It’s a charming read, as the policymaker reviews the eurozone crisis in pleasantly digestible terms even by Friday morning standards.
Once the crisis was underway, and sovereign spreads had widened out, a debate started: Read more
At Thursday’s ECB press conference, Mario Draghi unveiled plans to introduce a new series of euro bank notes. And there was a little video to accompany the news… Read more
The ECB may have granted loans to the Spanish bank sector on too low an interest rate given the quality of the collateral posted, according to an investigation by Die Welt. It potentially raises rather worrying questions about the bank’s risk control systems and whether it is even following its own strict lending rules. Read more
From the ECB’s September update on monetary developments in the euro-area released on Thursday:
That’s euroland M3 – the broad money supply measure — coming in below expectations and dropping again to 2.7. Really brings to mind Draghi’s warning to the Bundestag that “In our assessment, the greater risk to price stability is currently falling prices in some euro area countries”, doesn’t it? Read more
Consider this chart from Bank of America Merrill Lynch:
What it shows is pressure building on the front-end of Euribor contracts. Short positions might be stacking up, apparently.
Why? It might be because there is speculation flitting about that European banks will begin to pay back some of their LTRO cash in the near future. Something not everyone thinks is likely to happen. Read more
The Bundesbank used its latest monthly report to reiterate its criticism of ECB bond-buying activities, warning that it delays the necessary adjustment process in the euro region. It also said that the German economy may contract in the current quarter. Happy days! Read more
Best source a wet towel before clicking on this latest working paper from the European Central Bank…
That’s Spain’s 10yr spread over German Bunds dropping below 400 points for the first time since the start of April:
Spanish 10yr fell to 5.547 with Bunds touching 1.5864.
Probably something to do with Moody’s qualified endorsement: Read more
That call might not come this side of New Year.
The market has been waiting for Spain to request its very own Enhanced Conditions Credit Line for quite a while now. It’s the road to OMT. And for a (very) little while just last week while it appeared we were only a weekend away.
But it’s now looking increasingly like we are not gonna get to see any OMT buying at all in 2012. Sad. Read more
If you think Germany’s response to the crisis has been less than lightning swift so far…
JP Morgan’s Alex White argues that the German policy motor may be about to properly slow down, and with it the response to the eurozone crisis which usually moves at Germany’s speed: Read more
Fact du jour on collateral accepted at European Central Bank liquidity ops, via Benoît Cœuré, ECB executive board member:
...non-marketable assets and above all, credit claims (i.e. normal bank loans) have become the largest single asset class in our collateral portfolio. Read more
Big props to Bloomberg for putting this little-known case on the radar (don’t worry, we’ll explain):
Remember when Denmark’s central bank went negative, back in July?
After the ECB’s deposit rate went to zero, the Nationalbanken cut its own deposit rate, largely in order to stem capital inflows. Read more
Poor Jens Weidmann.
After weeks of macro-economic sniping following his isolation at the European Central Bank over its new bond-buying policy, Jens Weidmann on Tuesday resorted to Goethe’s Faust to make his point. The classic play highlighted, he argued, “the core problem of today’s paper money-based monetary policy” and the “potentially dangerous correlation of paper money creation, state financing and inflation”. Read more
Well, this is good news… Reuters have corrected their copy on what had sounded like confusing remarks made on Monday by Luc Coene, Belgian central bank governor, about the maturities of the debt the OMT will buy. (It had certainly confused us, in an earlier version of this post – sorry.)
He also said parts of the new programme’s design meant there were built-in limits to how much it could spend. Read more
The markets are reminding the Spanish Prime Minister that he needs to actually request economic assistance — and accept all that that entails — before the ECB will physically buy Spanish paper.
Here’s the 10 year Spanish note on Monday, just as it travelled back up through 6 per cent… Read more
Charts on a certain broken transmission mechanism are popping up everywhere.
First, a chart from Exotix — ECB data from March show that 42 per cent of small businesses in Greece couldn’t get the loans they asked for: Read more