vendredi 23 janvier 2015
The ECB confirmed January’s worst-kept secret and announced an expansion of the Asset purchase programme to include government and corporate bonds. Given all the leaked information in the past couple of weeks, it was hard for Draghi to over-deliver today, but looking at the bigger picture, a sovereign bond buying programme on this scale would have been unthinkable only a few months ago, so should be welcomed with optimism. It is generally accepted that the impact on the Eurozone economy will be small, but it will be an added positive at a time when lower energy prices and loosening credit conditions are also providing a tailwind. Furthermore, the commitment to do ‘whatever it takes’ to combat deflation risk should provide a boost to confidence. Draghi’s finest hour as ECB president to date was the skilful negotiation of the OMT programme at the height of the Euro crisis. QE might not hold quite so much significance in the turbulent history of the Euro project, but we should think twice before writing it off.
With respect to the fixed income market, the commitment should be positive for peripheral country bonds, although we cannot forget the potential for Greek contagion in the short-run. The impact on core bonds is more ambiguous, as any sign that the Eurozone economy is not condemned to eternal deflation will make long rates appear very unattractive, even in the face of a price insensitive buyer. The experience of previous QE programmes suggests that the boost to growth and inflation expectations trumps the demand and supply dynamics if the policy is credible, and yields move higher. The ECB will have a tougher job convincing investors than the Fed or the Bank of England, but in general we see no reason why this would not be the case in Europe too.