ECB will offer a chicken, fish or steak entree choice

A Dutch newspaper is reporting that the ECB will present its members a menu of 3 possible choices for the next round of QE. I guess these choices would be considered the entrée’s to the appetizer’s of a negative deposit rate, TLTRO loans, and ABS and covered bond buying. It’s of course only entrée choices because the appetizer’s didn’t culminate in filling up the ECB balance sheet. We know the appetizer’s were meant to be the entrée’s when originally announced. The first choice is what all market participants are hoping for, buy sovereign government bonds in a ratio that equates to each country’s shareholding in the ECB. For option number two, the ECB will only buy AAA rated bonds (not many left) and hope that the holders of those bonds will then use the proceeds to buy lower rated sovereign and corporate bonds. The 3rd entrée choice would have each country’s national central bank to buy their own sovereign bonds, thus leaving credit risk away from the ECB balance sheet. We’ll get one of the above from the ECB but expecting a new result will be wishful thinking as I’ll say for the umpteenth time, the cost of money and liquidity are not currently binding constraints on the European economy. The perceived omnipotence of central banks is on the cusp of changing.

Peter Boockvar, Managing Director and Chief Market Analyst at The Lindsey Group

Three choices of entree – It’s like a wedding! A really sad one where everyone knows there will be a nasty break-up.



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