Removing Capital Key Will Be ‘Most Drastic Option’ for ECB: BNP
(Bloomberg) -- Any ECB move to extend QE beyond March 2017 could lead to an outright shortage of eligible bonds in current low yield environment, BNP Paribas strategists including Ioannis Sokos, Patrick Jacq write in client note.
- Any such QE extension will need to be accompanied by an amendment of the program
- The most drastic option would be to change allocation criteria from capital key to a debt-weighted or GDP-weighted rule
- That may raise political and legal opposition in some countries as it would favor Italy and France over Germany
- Increasing the issue share limit on non-CAC bonds is a purely technical change that is unlikely to raise any political opposition; it may imply a further flattening of core curves
- Abolishing the deposit-rate threshold would probably lead to a re-steepening of core curves
- NOTE: Pimco expects ECB to tweak QE in order to expand the universe of eligible bonds, for instance by moving away from the capital key rule: more
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 2539Z GR (European Central Bank)
People Ioannis Sokos (BNP Paribas SA)
Patrick Jacq (BNP Paribas SA)
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