The First Ever Look Inside The ECB's Trading Floor

In what was likely an attempt to win over skeptics about its bond purchase program, which as of last week includes not only sovereign and covered-bonds, but also corporates (both Investment Grade as well as apparently junk bonds), the ECB released a video last week titled "Inside the Asset Purchase Program" or APP. The ECB described the the APP as "one of the non-standard monetary policy measures the ECB has taken to address risky periods of low inflation."

It is unclear whether the ECB will achieve its goal of converting any skeptics, especially after DB's stock just slid to new lows earlier today and the outcry against both NIRP and direct interventions in the market grow ever louder with every passing day, but at least the video provided a candid look into the rationale presented by the APP's key managers into why they are doing what they are doing. Take the example of ECB economist Tobias Blattner who said that the ECB launched the APP "because it was facing a situation in which there was continued downside pressure on prices that were jeopardizing the achievement of the ECB price stability objective" confirming once again that the ECB's only real mandate is to keep asset prices higher.

Another ECB economist, Soren Radde, said that the ECB expects that asset purchases "will boost GDP by around one and a half percent over a three year period, and inflation by half a percentage point in 2016 and 2017." So far it has failed to achieve either of these, with the Eurozone constantly flirting with contraction and which in April once again slid into deflation.

So much for the economic justifications. The ECB managers then go on to explain precisely how the APP takes place. As Julian Von Landesberger, a "Principal Portfolio Management Expert" notes, "our day starts, naturally, with selecting the bonds that we will buy on that day, then we communicate this to the national central banks that also operate in the market, thereafter we buy the bonds either electronically or via telephone." Another ECB staffer explains how the initially confused central bank is increasingly moving all its "purchasing management" in house, to wit: "we used from the start four external asset managers and more recently two external asset managers and two internal asset managers."

And here is the punchline on why the ECB believes it is right in utterly distorting yet another market: "By increasing the prices of these assets we give banks incentives to grant more loans of this type and thereby provide more credits to the economy, and that will also ease the borrowing conditions of ultimate borrowers." Alas, so far that has also not materialized, instead what the ECB has done is paint itself into a corner where it can no longer let the European bond market function on its own as the merest hint of its withdrawal from asset purchases assures an epic crash as bonds are forced to reprice to fundamentals.

But most importantly, the ECB has for the first time provided a glimpse into what its trading floor looks like, as well as how the biggest hedge fund in the world is currently trading across all asset classes. Here are some of the key snapshots provided from the ECB's video:

 

Also, for those curious, the man who is in charge of the ECB's entire APP is Torsti Silvonen, profiled below:

Torsti "Toto" Silvonen is the Head of Bond Market and International Operations Division at the European Central Bank. He is currently responsible for leading and coordinating the ECB's short-term market reporting, ECB's FX market, own investment and foreign reserves activities as well as for coordinating the implementation of the ECB's asset purchase programmes. He has been at the ECB from its outset and spent two years in Bahrain acting as an Advisor to the Central Bank of Bahrain in the area of Banking Operations. He started his central banking career as a Risk Analyst and Portfolio Manager at the Central Bank of Finland and has an M.Sc from the Helsinki School of Economics.

Finally, here is the ECB's org chart of all those responsible for destroying price discovery and rigging Europe's bond market:

The full ECB video providing the historic first look into the ECB's trading desk is shown below.