With ECB Easing Inevitable, Periphery Yields Hit New Lows
Sober Look | Apr 24, 2013 01:25AM ET
As France and Germany PMI measures converge on the rest of the eurozone, and with the area as a whole in a contraction mode, it is becoming increasingly clear that the ECB is likely to ease monetary policy further.
Markit: Activity fell sharply again in both manufacturing and services. While the former saw the steepest rate of decline for four months, the latter saw the downturn ease slightly compared with March.
New business fell for the twenty-first successive month, with the rate of deterioration accelerating for the third month in a row to signal the steepest decline since December. Marked falls were seen in both manufacturing and services.
Some have been hoping that the ECB will follow the Fed, the BOJ and BOE into the brave new world of QE on an unprecedented scale. The probability of such action is quite low however, as the ECB does not have the dual mandate of the Fed and (for now) is only focused on price stability. The ECB also may hold back on buying periphery debt until/unless the nations request "assistance".
Even if the central bank commences some bond buying, it is unlikely to be large and would probably end up being sterilized. Nevertheless, in preparation for this easing action by the ECB, yield hungry investors bought sovereign bonds across the board. Italian and Spanish yields dropped to the lowest level since 2010.
In an economy that may be close to becoming deflationary, the drive for yield seems to override sovereign risks. This move in yields is especially remarkable given that less than a year ago the Spanish banking system was teetering on collapse.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.