20 Feb 2015
ECB’s QE still not priced in – BAML
FXStreet (Edinburgh) - According to analysts at Bank of America Merrill Lynch, the upcoming launch of the QE programme by the ECB would not be still priced in by markets
Key Quotes
“We have been arguing for a while that ECB QE is not priced in. 2Y1Y EONIA is trading at only around -3bp (we target -15bp)”.
“The periphery remains wider than on the day of the actual ECB announcement, and compared to the move in Bund yields has actually cheapened (we target 80bp in 10y Bund-BTP spreads)”.
“Bund ASW remain cheap, in our view, given the likely scarcity of physical cash assets once QE is actually in full swing (we target -45bp)”.
“Finally, break evens have actually cheapened since 22 January. We have referred to these trades as the first order effects of QE, and still see value in the first three”.
“One could also refer to these QE trades as the macro expression. However, as we approach the actual launch of QE, examining the relative value trades becomes more interesting. The conclusion is the same: the market is not pricing in the likely relative value distortions that QE will generate”.
Key Quotes
“We have been arguing for a while that ECB QE is not priced in. 2Y1Y EONIA is trading at only around -3bp (we target -15bp)”.
“The periphery remains wider than on the day of the actual ECB announcement, and compared to the move in Bund yields has actually cheapened (we target 80bp in 10y Bund-BTP spreads)”.
“Bund ASW remain cheap, in our view, given the likely scarcity of physical cash assets once QE is actually in full swing (we target -45bp)”.
“Finally, break evens have actually cheapened since 22 January. We have referred to these trades as the first order effects of QE, and still see value in the first three”.
“One could also refer to these QE trades as the macro expression. However, as we approach the actual launch of QE, examining the relative value trades becomes more interesting. The conclusion is the same: the market is not pricing in the likely relative value distortions that QE will generate”.