HALISTER1: Pay EUR 1y1y OIS, Don’t Expect Removal of Depo Floor Rule: Citi

Pay EUR 1y1y OIS, Don’t Expect Removal of Depo Floor Rule: Citi

(Bloomberg) -- Don’t expect removal of depo rate ECB QE floor as the Bundesbank would then have deeper losses on its buying, Citigroup strategists including Harvinder Sian write in client note.
  • This is the dark side of risk segregation with the Buba having to account for the fiscal consequences of negative rate buying
  • Fiscal consequences of negative rate buying don’t have a backstop like the BOE indemnity from U.K. Treasury, so doubt the Buba would remove depo buying floor
  • Hard to see the ECB abandoning the capital key given the political attacks from German into an election year but there may be a fudge, for instance, redistributing any bund buying allocation that can’t be filled to other issuers using the ex-German capital key would be a neat solution
  • Pay 1y1y EUR OIS, target -0.42% with 3-mo. roll-up worth a favorable 1.3bp, stop at -0.56%, which would be equivalent to taking the depo rate below -0.60%
  • Risk is a signal by the ECB that Swiss levels of -0.75% are closer to the lower bound, reversing recent rhetoric and not being concerned regarding bank profitability
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

Tickers
2539Z GR (European Central Bank)

People
Harvinder Sian (Citigroup Inc)

To de-activate this alert, click here

UUID: 7947283