The troubles of Deutsche Bank are making European Central Bank President Mario Draghi's job more complicated.
The surge this week in relatively safe sovereign securities left about a third of the Bloomberg Eurozone Sovereign Bond Index ineligible for purchase under the ECB's quantitative-easing program. The gains mean $2.2 trillion of debt in the index now yields less than the institution's deposit rate - currently minus 0.4 per cent - and is therefore off-limits.
That's increasing speculation the ECB will have to tweak its public-sector purchase program, through which it buys Euro80 billion ($90 billion) of securities each month. The program is due to run until at least March as policy makers try to boost growth and inflation.
"It puts more pressure on the ECB to tweak the PSPP because with yields falling like that, more bonds are falling below" the buying threshold, said Vincent Chaigneau, London-based global head of rates and foreign-exchange strategy at Societe Generale. "That's definitely adding pressure to make an announcement." The "big question," Chaigneau said, is whether the ECB will opt for "selective buying" of bonds yielding less than the deposit rate.
While Draghi and his colleagues already appointed a committee to improve the implementation of QE, a bond selloff after the ECB's September 8 policy decision eased pressure on the central bank by reducing the amount of bonds it couldn't buy.
Ten-year German bund yields touched a post-Brexit-decision high of 0.08 per cent within a week of the meeting, before falling back to minus 0.12 per cent as of the 5 pm London-time close on Friday.
Bloomberg
