Halister News

(Bloomberg) -- Credit markets’ net negative reaction to yday’s headlines that suggested ECB may look to taper QE program after March, while incredulous to some investors, highlights the degree to which asset prices are distorted. Risk assets have become hooked on monetary stimulus since 2008 and any prospect of that supply ending could leave them susceptible to a swift reversal in risk tolerance levels.

• ECB QE was always perceived by market participants as a finite exercise, to be scaled back when economic conditions were sustainably robust enough to allow that
  • Euro-area headline CPI (+0.4%), PPI (-2.1%) and GDP (+1.6%) certainly not perceived as strong enough to justify a near-term move towards ‘tapering’
• Seeds of doubt may now have been sown over future path of ECB policy; if polemic gains momentum over coming months, while macro data remains anemic, it could damp risk appetite levels and trigger re-steepening of credit quality curves
• Expect intense focus on ECB rhetoric over coming days, weeks
  • Renewed taper talk would likely trigger fresh selloff in risk assets while any dovish remarks, taper denial, may persuade investors to look at current back-up in spreads as an attractive entry point

• NOTE: Simon Ballard is a credit strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.