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12 Dec 2014
TLTRO allotment unlikely to derail QE – BAML
FXStreet (Barcelona) - Ruairi Hourihane and Sphia Salim, Rates Strategists at Bank of America-Merrill Lynch, note that market expectations reduced substantially after the TLTRO allotment stayed just over half of the available allowance, further adding that the TLRTO number doesn’t derail the prospect of QE in Q1, 2015.
Key Quotes
“Yesterday morning, the ECB announced the take-up at its second TLTRO. The amount was very much in line with our estimates, as €129.8bn was allotted, adding to the €83.6bn taken in Sep. This means European banks borrowed just over half of their available TLTRO allowance across the two operations. Market expectations had been substantially reduced heading into the number, with EGB markets, in particular unsure about how to react to the consensus print. All in all, we would argue that yesterday's number does little to derail the prospect of QE in 1Q next year.”
“A low core participation (borrowing just one-third of their allowance) calls into question the "banking channel" of monetary policy and whether the ECB can rely on the banks to achieve its balance sheet target.”
“Digging further into the details of yesterday's allotment, we estimate that peripheral banks took as much as €70bn, with core banks accounting for about €60bn. This means that Italy and Spain accounted for over half of all TLTRO borrowings drawn in both the Sep and Dec operations. Overall, we remain long 1y1y Eonia and see the large peripheral borrowings supporting our bullish stance in these markets.”
Key Quotes
“Yesterday morning, the ECB announced the take-up at its second TLTRO. The amount was very much in line with our estimates, as €129.8bn was allotted, adding to the €83.6bn taken in Sep. This means European banks borrowed just over half of their available TLTRO allowance across the two operations. Market expectations had been substantially reduced heading into the number, with EGB markets, in particular unsure about how to react to the consensus print. All in all, we would argue that yesterday's number does little to derail the prospect of QE in 1Q next year.”
“A low core participation (borrowing just one-third of their allowance) calls into question the "banking channel" of monetary policy and whether the ECB can rely on the banks to achieve its balance sheet target.”
“Digging further into the details of yesterday's allotment, we estimate that peripheral banks took as much as €70bn, with core banks accounting for about €60bn. This means that Italy and Spain accounted for over half of all TLTRO borrowings drawn in both the Sep and Dec operations. Overall, we remain long 1y1y Eonia and see the large peripheral borrowings supporting our bullish stance in these markets.”