The banking sector has more than one reason to complain about the ECB’s latest moves. In addition to the fact that zero interest rates are burying their margins, their lending business is now suffering the damaging effects of the central bank’s corporate sector purchase programme. This new measure has meant that many big companies are substituting bank financing with bond issues.
ECB bond purchases
The Corner | March 13, 2015 | With its ambitious QE programme, the European Central Bank has become a new buyer in the debt market, absorbing almost 15% of total fixed-income debt in the eurozone. Who will benefit most in this new environment?
The Corner | March 5, 2015 | Whatever it takes, don’t miss the mechanics of the European Central Bank’s next purchase programme starting on Monday.
The Corner | March 2, 2015 | Concerns about the impact that the ECB’s quantitative easing programme will have persist ahead of monthly purchase of €60 billion in sovereign bonds.
MADRID | The Corner | Markets are already discounting the ECB’s QE of sovereign debt. That is why the risk premiums of the European periphery are now at historical low levels –take the Spanish one, for instance, which has dropped to 108 points. The yield of the 10-year bond has fallen to 1.85%. In this context, a sovereign bond purchase program still makes sense. “The latest inflation data of the Eurozone, which are at 0.3%, are a clear indicator of that,” Felipe López-Gálvez, expert at Self Bank, explains. However, the program would not acquire a full meaning until the German economy showed signs of weakness. “If Germany holds on,” then the ECB will not come to that extreme.
MADRID | The Corner | Regarding the corporate bond purchases by the European Central Bank, market watchers at Barclays consider that it won’t be enough to expand the balance sheet by €1trillion. Expert Alberto Vigil notes that, since investors are already buying corporate bonds, it doesn’t make much sense for the ECB to also purchase them, especially given the fact that asset risks are not exactly cheap. (Graph by Bruegel)