Posted To: MBS Commentary
Some time between yesterday’s European Central Bank (ECB) announcement and this morning’s open, market participants decided to interpret the QE program as buying a fixed amount of bonds of Eurozone countries based on their weighting (aka “capital key”) in the ECB. While the statement does indeed say that purchases will be based on the capital key, it doesn’t specify whether that refers to maximum eligible purchases or a flat guarantee to split the €60bln according to the key. The latter seems to be the consensus. That means that Germany, France, and Italy will receive nearly half of the purchases. This would more than explain the roaring move to new all-time low yields in German Bunds when QE was ostensibly about lifting up the periphery. But perhaps this is the price…(read more)
Via:: MBS RECAP: We’ve Only Just Begun (to See ECB QE Volatility)
