Saturday 24 March 2018

Euro falls as ECB says it is speeding up QE

Benoit Coeure
Benoit Coeure
Colm Kelpie

Colm Kelpie

THE European Central Bank (ECB) announced yesterday that it was speeding up its mass government bond-buying programme over the coming months, driving down the Euro and bond yields.

ECB executive board member Benoit Coeure said the Frankfurt-based regulator was stepping up its quantitative easing programme this month and next to take account of the quieter summer months.

Under the €1.1 trillion QE plan, the ECB has pledged to buy about €60bn worth of Government bonds per month on average. But Mr Coeure stressed the frontloading of asset purchases was not being done to counter recent market activity that has seen the sell-off in the Eurozone bond market reach its sharpest level since the single currency's introduction.

Mr Coeure said the fall in bond prices isn't concerning in itself, but he described the pace as worrying. "I do not see the recent reversal in the price of Bunds and other sovereign bonds as a cause for concern, insofar as it reflects a market correction," Mr Coeure, pictured, said in a speech in London.

"It is the rapidity of the reversal that worries me more."

Private investors have been dumping Euro-area bonds at the fastest pace in the last fortnight since the euro was introduced, driving up yields.

Ten-year German Bund yields have gone from near zero at the end of April to over 0.7pc last week. Mr Coeure said that if needed, the frontloading could be followed by some easing off in September when market liquidity is expected to improve.

"The slightly higher purchase volume that market analysts may observe in the coming weeks is therefore unrelated to the recent episode of market volatility," he said.

Anticipating a flood of yet more euro onto the market, the single currency tumbled when the ECB released its Executive Board member's remarks, sending European shares rising to near multi-year highs.

Mr Coeure said the speed of the recent spike in bond yields was worrisome and that the ECB could "moderately" increase its buying this month and next so that it did not fall below its monthly buying target. He said, however, that the two were not linked.

Other central bankers chimed in with support for the ECB's fledgling scheme to buy €60bn a month of chiefly government bonds.

"The Eurosystem is ready to go further if necessary," said Christian Noyer, who as governor of the Bank of France also sits on the ECB's decision-making Governing Council.

Irish Independent

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