12 Dec 2014
Yesterday’s TLTRO allotment questions ECB’s balancesheet expansion – ING
FXStreet (Barcelona) - Martin van Vliet, Senior Economist – Eurozone at ING, notes that yesterday’s TLTRO allotment of €129.8bn was disappointing, raising doubts about the feasibility of ECB’s intention to increase its balancesheet by €1tr through TLTRO’s and bond purchases.
Key Quotes
“The take-up in yesterday’s TLTRO is perhaps not as bad as some had feared, but probably much lower than the ECB had hoped. The ECB lent €129.8bn to 306 bidders, €47bn more than in the first TLTRO but €18bn less than the consensus had expected (€148bn). The number of bidders (constituting banking groups and individual banks) is 51 higher than in the first TLTRO (255). To use the beer drinking analogy used in a recent FT article: today’s ‘happy hour’ was better attended than three months ago.”
“In terms of policy implications, yesterday’s lower-than-expected allotment will raise fresh doubts about the feasibility of the ECB’s intention to increase its balance sheet by around €1tr (through the TLTROs and their covered bond and ABS purchases). As such, the result further shortens the odds of the ECB launching full-blown QE in Q1 of next year.”
“The boost to “excess liquidity” in the money market from yesterday’s TLTRO will not be felt until 17 December, when the operation settles. In this regard, much will depend on how much liquidity will be drained in next week’s 3-year LTRO repayment (details to be announced later today). On balance, we expect the level of excess liquidity to rise from the current €90bn to €130-150bn after TLTRO settlement. Such a level would seem to be consistent with EONIA trading close to -5bps.”
Key Quotes
“The take-up in yesterday’s TLTRO is perhaps not as bad as some had feared, but probably much lower than the ECB had hoped. The ECB lent €129.8bn to 306 bidders, €47bn more than in the first TLTRO but €18bn less than the consensus had expected (€148bn). The number of bidders (constituting banking groups and individual banks) is 51 higher than in the first TLTRO (255). To use the beer drinking analogy used in a recent FT article: today’s ‘happy hour’ was better attended than three months ago.”
“In terms of policy implications, yesterday’s lower-than-expected allotment will raise fresh doubts about the feasibility of the ECB’s intention to increase its balance sheet by around €1tr (through the TLTROs and their covered bond and ABS purchases). As such, the result further shortens the odds of the ECB launching full-blown QE in Q1 of next year.”
“The boost to “excess liquidity” in the money market from yesterday’s TLTRO will not be felt until 17 December, when the operation settles. In this regard, much will depend on how much liquidity will be drained in next week’s 3-year LTRO repayment (details to be announced later today). On balance, we expect the level of excess liquidity to rise from the current €90bn to €130-150bn after TLTRO settlement. Such a level would seem to be consistent with EONIA trading close to -5bps.”