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The ECB Just Launched Bizarro QE Taper
Less than 48 hours after the official launch of the ECB’s celebrated PSPP Q€ initiative (or what we might call ‘Draghi’s descent into delirium’), we examined the program’s structure and noted that full implementation might prove challenging. Citi had already posited a scenario whereby the central bank may be forced to raise the issue cap on non-CAC bonds in the event sourcing enough purchasable assets in core countries proved difficult. Here’s what we said at the time:
Only two days into PSPP and there’s already talk of a taper tantrum triggered by the core’s inability to source enough bonds to meet quotas (everyone saw this coming of course, including us).
As time went on and the Bund curve converged on -0.20%, it was becoming readily apparent that the depo rate floor effectively made the program self-defeating because if the goal is to drive down rates but there’s a floor under which you will not buy, then the more successful you are, the fewer options you have in terms of meeting the program’s monthly purchase totals.
Of course Bunds sold-off dramatically starting on April 21, with yields on German 10s jumping from under 10bps to over 70bps prompting every sell-sider and pundit to speculate on the cause of the ‘great Bund rout’. We’ve covered various explanations at length (here, here, and here for instance), so we’ll leave that aside for now other than to say that one possible contributing factor that we discussed late last month was the fact that EGB supply is set to be positive in May before reversing course into the summer “drought” when supply will turn negative, deeply so in July.
Fast forward to 6 pm London time on Monday and the ECB's Benoit Coeure told a non-public audience of hedge funds that the because markets are usually less liquid in the July-August “lull”, the central bank would be “slightly” front-loading PSPP purchases in May and June. That very material and very non-public information became available to the rest of the market some time later and we imagine that some folks made some money in the ensuing 150 pip EURUSD plunge.
Looking past the ethical implications of this for time being, it’s worth pointing out that, as BNY Mellon strategist Simon Derrick told WSJ, “even though this is just front-loading, it is effectively an increase in the size of quantitative easing, even if just for a short period of time.”
That's the "MOAR" message.
Of course this means the opposite is true as well. That is, anytime supply is net negative, the ECB will taper QE. Ultimately, the central bank has just announced its intention to conduct intra-QE tapering and un-tapering in an effort to manage flow volatility.
With that in mind, we'll leave you with the following chart which should serve as a helpful guide as you traverse the ECB's now dynamic PSPP:
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The ECB is 3 years late with QE so yields are to low for QE effectively. Furthermore it presents a guaranteed loss for the ECB. The announcemend came because the STOXX 50 was hovering around a 10 % correction despite QE. There is full panic mode now.
It appears that , he who QE's first, QE's best.
Seems like a hastely typed article. "We’ve covered various explanations at length (here, here, and here for instance)..." Missing links where it says "here?"
"...ECB's Benoit Coeure told a non-public audience of hedge funds that the because markets are..." Errrr, "...that the because markets are...?"
Reminds me of Wayne's World's: "my sphincter says what?"
So, the ECB will the first tower to fall, good to know...
PS. "You can't taper a ponzi-scheme." - Max Keiser
ECB will taper QE
What does that mean in English?
everything about this Q€ is bizzarre, a bizzarre action fit to bizzarre times and an even more bizzarre reporting about it, both by the conventional media and even ZH
"guaranteed loss for the ECB"? well, 80% of this "QE" is on the balance sheets of the national banks, the NCBs. and their rationales for those highly unconventional measures are... plenty
but the stock markets? european stock markets? that's projection from our cousins on the other side of the pond. bonds are still way more important then stocks, for the european national bankers
ECB's order of relevance: sovereign bonds, FX, commercial bonds, stocks. the FED's order of relevance: stocks, stocks, stocks, all the rest
why? because the economy of the eurozone is structured differently, and so it's banking systems. something even excellent megabank analysts often don't acknowledge or even note
so what happens if the eurozone sovereign bond market is dried up by the EuroSystem? market prices work on the margin. prices, most of the time, depends from flows, not stock. and the act of bein seen doing a Q€, together with the talk around Q€ is where the real action is for NY and London - including the dirty sweeteners that some weasels seem to dispend
all in all, this Q€ is a very new method of using old tricks, and a form of financial repression. the real action is about how much pressure this puts on the FED, and it's rates policies
the EUR and the ECB? working as designed. as "simple" as that. let's see when the FED increases rates
Come on Ghordo, we both know that the Fed increasing interest rates is about as likely as Greece returning to growth next year or QE in Rainbow land actually working.
I remember the times where if someone would have forecasted the FED to catapult rates over 15%... he would have been called quite mad
I remember the times when if someone would have forecasted Washington to repudiate the gold backing (for foreigners) of the USD... the same
I remember the times when if someone would have forecasted Americans to be eventually free to buy and sell gold (leading to a small bubble)... the same
just saying, there are some very interesting historical precedents of Uncle Sam flabbergasting the world, and I witnessed some of them
It's not Uncle Sam but the politicians behind it that never cease to amaze but the difference now is that most of those other moves were done while the US was growing in influence not shrinking. So you may get a situation where Europe moves to cashless economies, drives the big money towards the US as capital controls are put into place and then the US responds to cool the markets by raising rates in October. You just never know.......
The best gig is still "Money for Nothing and Checks for Free"
surprised about net size of portugal
Popcorn: check
Beer: check
Seatbelts: check
And so it begins.
I ran out of popcorn & beer awhile back, and the seatbelts have gone and rusted. I think I'm about ready for a snooze. Wake me up if anything happens.
Clearly in full control of the situation. Clearly.
considering that "the situation" looks like the cornering of several markets...
Print it out dice it up. Its the banksters earning a living.
The first QE will likely buy up all of the PIIGS debt so it should be party on!
its surreal to realize that these 'elite power players' in our society -- the banks -- are just vendors of different forms of paper promises.
they make a living shuffling, filing, buying and selling paper promises. Each new one they create demands a new level of 'skill' and 'understanding' to grok the implications of its labrynthian rule structure.
In maybe most cases, its not even paper promises, their electronic. Which kind of indicates the madness of everything. These guys are like the high priests of a huge spreadsheet program; they fill in some boxes each year and then watch what the outputs are.
And yet, our society depends on them to live. Nice setup. ;/
Europe, especially Italy and Germany, do not have a replacement birth rate. Their populations are dwindling. This is the core reason of European deflation and stagnation. A 67 year old simply doesn't buy as much stuff as a couple in their late 20's with a couple of kids.
The writing is on the wall. It's over. European pussies barely produce 2 kids, Muslim pussies produce 8+ kids. They will win just based on the power of their pussies spitting out kids.
My shit tapers at the end, too.
Someone here once said Europe will be in flames before the U.S. even farts.
We'll see.
Honestly, I recommend doing a Goggggle search for moving to a different planet.
This is just unhinged.