ECB Trims But Extends QE: ETF Winners & Losers

 | Dec 08, 2016 11:48PM ET

The investing world saw a surprising ECB meeting on Thursday. The European Central Bank announced that it would lower its bond buying program to 60 billion euros a month from 80 billion from April, but extended the program to December 2017, or beyond, should there be necessity.

Earlier, the planned conclusion of the QE program was March 2017. Market watchers did not expect any sort of reduction in QE, though the fear had surfaced in October (read: 4 Inverse Bond ETFs to Watch as Rates Rise ).

Thanks to the ECB decision, bond market oscillated, initially witnessing a rise in yields, which later drifted downward after the central bank hinted at “buying bonds with yields below the ECB’s deposit rate of minus 0.4 %.’’

Overall, long-term bonds were more hurt on a rising inflationary prospect, resulting in a steepening of the yield curve. This is especially true as the ECB expects inflation to pace up substantially “[further] at the turn of the year, mainly owing to base effects in the annual rate of change of energy prices.’’

Investors should note that Euro zone inflation touched a 31-month high in November, meeting feebler economies —Spain, Italy and Portugal— saw a steeper rise.

While several Europe ETFs were hit on December 8 – some out of a fear of a reduction in QE and some out of currency woes – as evident from 0.6% losses in the broader Europe ETF Vanguard FTSE Europe ETF the downside ."

Following is table on ECB’s projection over inflation and growth made in the September and December meetings.