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23 Jan 2015
ECB risk sharing scheme largely irrelevant to the big picture – TDS
FXStreet (Barcelona) - “One issue unclear here is whether the ECB has created a de facto structured product here in their QE [..]”, quotes the TD Securities Team, and further add that the risk sharing scheme suggest by ECB is totally irrelevant to the big picture.
Key Quotes
“As we have also argued, the risk sharing scheme is largely irrelevant to the big picture as it only matters should there be risk of default. Any losses of European agencies (12% of total buying), as well as a further 8% of additional buying announced today of the sovereign debt purchases, will be subject to sharing while losses outside of this will fall on NCBs.”
“One issue unclear here is whether the ECB has created a de facto structured product here in their QE and the first 8% of losses across EGBs will be shared before NCBs are liable.“
“The ECB did reiterate that interest rates are at the lower bound which will keep the focus on asset purchases only. And the ECB did finally sweeten the remaining TLTROs by removing the 10bps spread off of refi that was included in the first two. But what is crucial is that the ECB has moved further along the spectrum to doing whatever it takes to hit their target. That means euro lower until further notice.”
Key Quotes
“As we have also argued, the risk sharing scheme is largely irrelevant to the big picture as it only matters should there be risk of default. Any losses of European agencies (12% of total buying), as well as a further 8% of additional buying announced today of the sovereign debt purchases, will be subject to sharing while losses outside of this will fall on NCBs.”
“One issue unclear here is whether the ECB has created a de facto structured product here in their QE and the first 8% of losses across EGBs will be shared before NCBs are liable.“
“The ECB did reiterate that interest rates are at the lower bound which will keep the focus on asset purchases only. And the ECB did finally sweeten the remaining TLTROs by removing the 10bps spread off of refi that was included in the first two. But what is crucial is that the ECB has moved further along the spectrum to doing whatever it takes to hit their target. That means euro lower until further notice.”