Eq: Dev ex-US


There has been a lot of hype over the last week about the Bank of England’s new quantitative easing programme. However, the programme appears to be stumbling just as it begins because of a key issue—investors are unwilling to let the BOE buy their long-dated bonds. For this first time in the history of doing its QE (which it started in 2009), the BOE failed to reach its stated goal amount at an operation on Tuesday. The problem highlights why the programme as a whole might struggle, as investors are reticent to let go of their long-term bonds because they are the only place one can earn yield.

FINSUM: So negative rates and the search for yield has become so strong that investors won’t even part with their bonds when there is a willing buyer in the market. Will this be a big thorn in the side of the QE programme?

Source: Bloomberg


The Bank of England surprised markets today with a shock move to stimulate the UK economy following the country’s vote to leave the EU. The BOE cut rates by 25 basis points and re-launched QE to £70 bn per month of purchases. The bank also decided to add corporate bond buying to its purchase programme at volumes of £10 bn per month. The bank also presented the biggest decline to the growth outlook in more than 20 years. The big announcement came following some very poor economic data.

FINSUM: This was significantly bigger than most were expecting, so the BOE certainly has the “shock and awe” factor on its side.

Source: Financial Times


Several days ago we made call, saying that it seemed likely the EU would have to go against its own rules and use public funds to bailout Italy’s Monte dei Paschi and other troubled Italian lenders. That call appears to be starting to come true, as ECB chief Mario Draghi has now officially called for a public bailout given “exceptional circumstances”. Draghi said doing so would help avoid firesales. So far, Italy has been unsuccessful in trying to secure funding to save its banks, and it has thus far been unwilling to impose losses on private investors, as doing so would inflict harm on a great many Italian households.

FINSUM: We think the EU is going to be forced to come around on this. The reason why is that if they let Italian bondholders take the big losses, then the far-right party is going to steam roll through a referendum on Italian Euro membership on the back of popular anger, which would torpedo the currency and launch a new financial crisis.

Source: Financial Times

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