03/04/2016
The ECB and QE
The European Central Bank is expected to cut its deposit rate again next week, March 10, further into negative territory, with most traders expecting a 10 basis point cut to -0.4 percent. In a story for Reuters, traders also gave a median 50 percent probability of an increase to the monthly asset purchase program, or quantitative easing (QE).
So I thought I’d update a piece I did on 4/3/15, after the ECB first introduced QE the prior March 9 (3/9/15).
The following are 10-year yields for 3/6/15, prior to the original move; 3/31/15 (an arbitrary date, but three weeks after the program went into effect), and then the respective low yield this past Monday and Tuesday, 2/29/16-3/1/16.
Yields were plummeting across euroland in anticipation of the first move in March 2015, and they’ve been largely falling again recently leading up to the ECB’s expected move(s) on 3/10/16.
10-year (closing) yields....3/6/15...3/31/15...2/29-3/1/16
Germany 0.39 (3/6/15)... 0.18 (3/31/15)... 0.11 (2/29-3/1/16)
France 0.69... 0.47... 0.47
Netherlands 0.43... 0.34... 0.29
Italy 1.31... 1.24... 1.38
Spain 1.29... 1.20... 1.48
Portugal 1.74... 1.67... 2.96
Greece 9.09... 11.31... 9.78
Britain 1.95... 1.58... 1.33
Japan 0.39... 0.39... -0.06
United States 2.24... 1.94... 1.83
Yields have been generally rising in Portugal and Spain, relative to France and Germany, for example, because of political issues in the two countries, while Greece is once again in a heap of trouble; not only over the latest bailout and further demanded cuts to its pension system, but also the catastrophic migrant crisis, which is seeing Greece having to take in hundreds of thousands who are now blocked from moving further into Europe.
As for Japan and that ‘minus sign’ you see, for the first time this week the government sold 10-year bonds with a negative yield. Yes, bondholders are paying the government for the privilege of lending it money.
But here’s the thing. The aggressive actions undertaken by central banks around the globe have done little, if anything, to further growth. You also need government reforms and responsible fiscal policies.
Wall Street History will return in two weeks.
Brian Trumbore
