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17 Dec 2015
Recalibrating to the ECB - TDS
FXStreet (Guatemala) - Analysts at TD Securities explained that whilst the measures taken by the ECB in December disappointed markets, they will ensure a high level of excess liquidity remains in the system for an extended period.
"The 6M extension to the program will take the APP to €1.5tr. This extension and the reinvestment of principal payments on maturing securities is expected to inject an additional €680bn of liquidity by 2019. We expect excess liquidity to be around €1.3tn by March 2017."
"In addition, the extension to the 3mo LTROs to beyond the expected end date of the APP should be taken as a form of forward guidance to interest rates and further easing for an extended period. We continue to favour EUR2s10s bund steepening as a trend as the front end should be anchored on forward guidance while the long end can drift higher on higher inflation and growth expectations."
"We close out our 5y EUR/USD cross currency basis swap trade. We first recommended it in September and reiterated it in November, expecting a move lower to –60-65bp on an aggressive ECB package. As the latter failed to materialise, we see no further impetus which will push the basis much lower, and indeed USD issuance should rise in January pressuring the basis higher."
"The 6M extension to the program will take the APP to €1.5tr. This extension and the reinvestment of principal payments on maturing securities is expected to inject an additional €680bn of liquidity by 2019. We expect excess liquidity to be around €1.3tn by March 2017."
"In addition, the extension to the 3mo LTROs to beyond the expected end date of the APP should be taken as a form of forward guidance to interest rates and further easing for an extended period. We continue to favour EUR2s10s bund steepening as a trend as the front end should be anchored on forward guidance while the long end can drift higher on higher inflation and growth expectations."
"We close out our 5y EUR/USD cross currency basis swap trade. We first recommended it in September and reiterated it in November, expecting a move lower to –60-65bp on an aggressive ECB package. As the latter failed to materialise, we see no further impetus which will push the basis much lower, and indeed USD issuance should rise in January pressuring the basis higher."