ECB Outlook and New Issue Guidance

The ECB has little appetite to change its monetary policy stance today after having extended the QE programme until the end of 2017 last month. In fact, many of the ECB’s (technical) decisions only came into force on January 13. However, some of the council’s considerations on the changes to the PSPP, as revealed in the accounts of the December meeting, may warrant further questions in the press conference today. Indeed, we would be keen to know (i) whether an increase in issue and issuer limits really is legally out of the question, and (ii) which additional changes to the design of the PSPP on top of the broadening of the maturity range and removal of the depo rate floor the Governing Council foresees if they were forced to “increase the programme in terms of size and/or duration”.

In any case, the ECB will probably reiterate that it expects key policy rates “to remain at present or lower levels for an extended period of time, and well past the horizon of [the] net asset purchases”. However, this hasn’t prevented 1y1y EONIA from moving towards – 30bp again, i.e. to the upper end of the range since November, effectively challenging the ECB’s pledge.

France will launch a new 3yr FRTR 2/20 today and tap the FRTR 5/22 alongside (combined €7-8bn). In linkers the FRTRi 7/21 and the FRTReis 7/27 and 7/47 will be re-opened (combined €1.5-2bn). Elsewhere, Spain will launch a new 5yr SPGB 4/22 and re-open the SPGBs 1/19 and 10/23 alongside (combined €4-5bn). In tapping the shorter bonds Spain has left the door open for a long end syndication in the upcoming week(s). Over the past week the 10 to 15yr sector has indeed underperformed on the SPGB curve. Versus its peers, though, Bonos generally have been holding up very well. Currently 10yr SPGBs trade some 50bps though BTPs, although that may still include some concession for the new 15yr BTP launched yesterday. But 10yr spreads versus Bunds are also at the lower end of their range since Q4 2016.