Halister News

(Bloomberg) -- In a “leave’ outcome, expect yield differential between 10Y UST and 10Y BTPs to go back to positive for the first time since the announcement of ECB QE, Goldman Sachs strategist Francesco Garzarelli writes in client note.

• Estimates BTP yields could increase between 30 bps and 50 bps, assuming that the uncertainty shock ranges between the one seen around the Scottish referendum (lower bound), or the Lehman crisis (upper bound)
• ECB would be limited to increasing the purchases within the existing flexibility of the program
• Rough estimate suggests ECB is removing $3.5m per basis point from the market on a daily basis, of which around $1.0m-$1.5m in the periphery
• Bigger moves in yields would possibly result in changes to the parameters of the QE program subject to the political economy constraints
• These changes could eventually extend to an increase in peripheral-market purchases relative to the present ‘capital key’ based QE allocations