Salient to Investors:
Owen Murfin at BlackRock said:
- Bond investors have been too hasty to bet the ECB will buy sovereign debt
- The ECB’s target of increasing its balance sheet by $1.29 trillion is ambitious and the poor take-up of new cheap loans offered to banks is no guarantee of QE – a second tranche in December is likely to be larger.
- Be cautious on periphery sovereign bonds as they are pricing in too much of a probability of sovereign QE in Europe. They have rallied without any pullback more on optimism about a very accommodative ECB rather than massive fundamental improvement.
Andrew Balls at Pimco said:
- The weakening euro-area economy makes QE more likely even while ECB policy has reduced the risk of another regional debt crisis.
- The credibility of the ECB’s inflation target is in doubt so a full-blown QE program would be their most practical approach.
- Pimco is overweight on peripheral securities, especially Spain and Italy
- Euro-area volatility will be suppressed as the ECB rolls out its stimulus measures.
Read the full article at http://www.bloomberg.com/news/2014-09-23/blackrock-cautions-on-euro-qe-as-pimco-bets-against-volatility.html
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