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21 Mar 2016
German yield curve after the ECB – Goldman Sachs
Huw Pill, Research Analyst at Goldman Sachs, suggests that the flattening of the German yield curve following the ECB’s announcement of additional asset purchases was modest.
Key Quotes
“The expansion of purchases to corporate bonds and the signalling that further cuts in the rate on the ECB’s deposit facility were less likely both helped to mitigate the squeeze on the long end of the German sovereign market.
Nevertheless, the increased monthly pace of asset purchases – if sustained well beyond March 2017, as we expect – will eventually lead to concerns about a scarcity of German Bunds emerging. Under the ECB’s existing self-imposed rules for conducting its asset purchases, this is likely to lead to further flattening of the German curve and greater pressure on the German financial sector.
As a result, relaxation of these self-imposed rules in the future remains likely. A departure of the allocation of asset purchases from the ECB’s capital key is still on the table.”
Key Quotes
“The expansion of purchases to corporate bonds and the signalling that further cuts in the rate on the ECB’s deposit facility were less likely both helped to mitigate the squeeze on the long end of the German sovereign market.
Nevertheless, the increased monthly pace of asset purchases – if sustained well beyond March 2017, as we expect – will eventually lead to concerns about a scarcity of German Bunds emerging. Under the ECB’s existing self-imposed rules for conducting its asset purchases, this is likely to lead to further flattening of the German curve and greater pressure on the German financial sector.
As a result, relaxation of these self-imposed rules in the future remains likely. A departure of the allocation of asset purchases from the ECB’s capital key is still on the table.”