Expansion / For Draghi has gone beyond betting investors. “It’s a lot of money you are putting on the table; 60,000 million euros per month. And with forecasts of net issuance there for States of the euro area, that means you’ll have to buy along all of the curve, “said a fund manager a few weeks ago. With this scenario on the table, the fund Long Term Fixed Income Santander, for example, opted for the longer maturities, where movements of profitability caused by the action of the ECB would be higher and would be amplified by its higher durations. And he was right.
The details revealed ECB President attest to this, because there are three factors that particularly affect a very good future for the longer term financing. The first is the cap that has been the central bank bonds with negative returns will buy, because in no case will acquire debt that is below the rate of the deposit facility (-0.20%). That means two German debt is automatically discarded years and there are few countries that are very close to it at that time, leaving more money for the rest of the time. Especially because the ECB has not put any limit to the average duration of the portfolio to be buying (second aspect propelling the longer term, it has not put a stop to risk) and can shoot everything that has a residual maturity that goes from two years to 31 years less one day (third rocket to the far side of the curve). Change the tide The result of all this is that the asset purchase program of the ECB will have an impact on the returns of higher debt that has already been noted, with the guarantee that States will enjoy their benefits for long. If I was in vogue during the crisis borrow money at very short term to minimize the cost, now the trend is the opposite: the auctions to 15 years are the order of the day, like the sale of debt to 30 or 50 years . At the end of the day, there are few countries that want to miss the opportunity of guaranteed money to several decades view in exchange for minimum pay of historical profitability. In Spain, for example, the interest that investors demand for debt at 50 years is below the average paid the whole debt. How long will the Government to issue to that term?
The reaction has been the market after knowing the details of the highly anticipated ECB QE points in that direction. A fall in yields leading European sovereign debt accumulated since the program was announced, has added another substantial cut has not been forgotten in all the periods that expire within several decades. The consequence is that Spain now has capacity to finance 30 years paying less than 2.3% interest given the listing of its obligations to that term in the secondary, while Italy is only slightly above that level and Portugal would have to go to 2.7%. Of course, neither Germany nor Finland should reach 1%.
And that ECB purchases have not even begun. Monday is the day marked on the calendar and thereafter will see the real effect of injecting 1.14 billion euros in the European debt market.
To cover himself (bets that no are active in Europe for so many artillery happen one after another), the central bank has allowed more margins for flexibility. The first is that if a month exactly 60.000 million was not spent nothing happens, and will be compensated to the next. And the second is that the list of affordable assets initially established and that included sovereign debt and public agencies (the ICO is among the graceful), is now number listed liabilities of international institutions have their headquarters in the eurozone. Starting Monday, the ECB or national central bank may supplement purchases have to do with bond purchases by the European Atomic Energy Community, for example.
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