Ramped Up ECB Buying Offers No Comfort for Reflation-Driven Debt

The European Central Bank’s accelerated bond-buying plan isn’t a panacea for anybody fearing higher borrowing costs.

Nordea Bank Abp doesn’t expect policy makers to commit to an aggressive-enough quantitative-easing target, and along with counterparts at UBS Group AG doubt that it will break the trend of higher yields.

Ramped Up ECB Buying Offers No Comfort for Reflation-Driven Debt

The pressure on rates is spreading from across the Atlantic, with bets on reflation taking Treasury yields to a 14-month high. That’s pushed European policy makers to pledge action. But some investors have questioned how far they will really go, pointing to three weeks of disappointingly low numbers for ECB purchases. The latest data is released Monday.

“We remain sceptical that the ECB is prepared for aggressive bond buying and see concrete yield or spread targets unlikely,” said Jan von Gerich, chief strategist at Nordea. “President Christine Lagarde did not even manage to provide further clarity on what preserving easy financing conditions means,” he added.

At the central bank’s meeting earlier this month, the ECB said that bond buying would be “significantly” faster over the next three months, signaling a new attitude toward damping rates after yields on 10-year German debt jumped in February to a one-year high.

U.S. Traders Hitting ‘Sell Button’ Put ECB Into Tight Corner

When the macro outlook is strong and improving, QE purchases cannot prevent an absolute increase in yields, said Rohan Khanna, rates strategist at UBS. “The ECB are guiding toward a higher quantity of purchases so as to keep yields around a certain range, but they are not doing this by giving explicit levels,” he said.

Khanna cites a previous period of large bond buying through 2017, which did not prevent German 10-year yields from climbing as much as 70 basis points. “Macro matters a lot more than the flow effect of purchases.”

The ECB will publish the week’s emergency bond-buying figures at 2:45 p.m. London time on Monday, having bought 14 billion euros of debt the prior week.

Week Ahead

  • Germany, Italy, Belgium and the Netherlands will sell a total of about 12 billion euros of bonds next week, according to Commerzbank AG. Danske Bank A/S expects the EU to sell five- and 25-year SURE social bonds next week, raising 13 billion euros to meet its first-quarter funding target. There are no redemptions until April, when Germany will pay around 21 billion euros, while Belgium pays 4.2 billion euros of coupons next week

    • The U.K. will hold one regular and one inflation-linked gilt auction, selling a total of 2.6 billion pounds, and the BOE will buy back 4.4 billion pounds of debt in three operations
  • Euro-area, German, U.K. and French preliminary manufacturing and services PMI data for March are due Wednesday
    • Germany’s Ifo survey for March will be published Friday
    • Aside from the PMI figures, U.K. data is busy with February unemployment and January wage numbers on Tuesday, February inflation figures Wednesday and February retail sales rounding off the week on Friday
  • ECB policy maker speeches next week begin with hawks Jens Weidmann and Klaas Knot on Monday as well as Isabel Schnabel and Pablo Hernandez de Cos; Francois Villeroy speaks on Tuesday followed by another appearance by Schnabel on Thursday and Luis de Guindos who speaks on the same day

    • BOE Governor Andrew Bailey speaks on Tuesday and Thursday for which no texts will be released; Andy Haldane and Jon Cunliffe participate on panels on Tuesday
  • S&P Global Ratings reviews Germany and Fitch Ratings reviews Belgium on Friday

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