Saturday 3 December 2016

European Central Bank could run out of German bunds by 2017

Sean Kelly

Published 19/07/2016 | 12:24

Mario Draghi said the current slow-growth world of high savings, low investment and weaker productivity could be tackled with pro-growth policies such as more public spending
Mario Draghi said the current slow-growth world of high savings, low investment and weaker productivity could be tackled with pro-growth policies such as more public spending

The European Central Bank (ECB) may run out of German bunds to purchase in its Quantitative Easing by the by the second quarter of 2017, according to a leading strategist at RBC.

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That may force the ECB to redesign its QE programme over the medium term.

German bunds or Government bonds are viewed as a safe haven for investors seeking to mitigate risk amidst volatility on global stock markets. German bond yields are currently in negative territory, and this status may result in the ECB having to alter its strategy.

Peter Schaffrik, Chief European Macro Strategist at RBC Europe told Bloomberg that the ECB “can’t buy anything below 4 basis points. Even if they don’t do something this week, I would expect them to look at something along these lines or otherwise they will be forced to effectively taper.”

Mr Schaffrik went on to add that there could be unintended consequences resulting from a shortage of Bunds. He stated that the distortion of the Bund market into negative territory could cause problems for German and Northern European life assurance companies.

In addition, Mr Schraffik said that the ECB’s focus on purchasing Bunds was serving to reduce possible stimulus effects in southern European states, which “are the countries that need it the most.”

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