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Action on the short end of EU sovereign debt curves - Italian 6-month yields diving 100 bps to...

  • Wednesday, January 4, 2012, 1:27 PM ET
    Action on the short end of EU sovereign debt curves - Italian 6-month yields diving 100 bps to 1.7% in 2 weeks - provides evidence the ECB's LTRO is having great effect, with banks happily taking 1% central bank money and playing the carry trade. It's an indirect form of QE says SocGen and perhaps explains euro weakness in the face of renewed "risk" appetite.
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    Where can Eurozone banks park the billions they got from the ECB in a single day in December if their own refinancing/repayment obligations are spread over 2012 Q1/H1? Back to the ECB overnight facilities (some explanation for the very high overnight balances) and also into "safe" very short term paper (some explanation, in addition to changing sentiment, for falling yields). The much-advertised/trumpeted "carry trade" is a third reason or simply a result of this timing mismatch, even if some banks surely actively put it on.
    4 Jan 2012, 02:30 PM Reply Like
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