ECB rates unchanged but eligibility issues remain

Added 21st July 2016

No changes to the European Central Bank’s monetary policy stance was announced at its meeting on Thursday; as it chose to maintain the deposit rate at -0.4%.

ECB rates unchanged but eligibility issues remain

The ECB also kept the refinancing rate at zero and the marginal lending facility at 0.25%.

“The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases,” the ECB said in a statement.

“While very little had been anticipated by the market, some questions in the press conference focussed on the future availability of eligible bonds for the ECB’s QE programme,” said Marilyn Watson, head of global unconstrained fixed income product strategy at BlackRock.

“Given the declining net supply of some of these bonds, we expect tweaks to the flexibility of the asset purchase programme to be announced this year,” she added.

In terms of BlackRock's sovereign bond positioning in Europe, the firm retains a preference overall for peripheral European debt. 

"We are positioned for a flattening of the long end of the Italian curve and have a favourable view of Italian inflation-linked bonds. In addition, we believe that the spreads between Portugal, Slovenia and Greece versus Germany have scope to compress in the coming months," continued Watson.

Draghi also suggested the potential development of a fully functioning market for NPLs, along with a ‘public backstop’ to support banks under exceptional circumstances, noted Viktor Nossek, director of research at WisdomTree Europe.

"Such measures will no doubt require some sort of compromise agreement needing to be struck as well as flexibility on the part of the European Commission (i.e. Angela Merkel)", said Nossek.

"This is outside the scope of the ECB and can only be achieved through concerted pressure by EU members. We are seeing France teaming up with Italy to leverage themselves against Germany," he added.

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