ECB agrees covered bond structure
The bank’s governing council yesterday signed off on two acts that officially establish the measure and lay out how it will be implemented, according to two eurozone officials who asked not to be identified because the discussions aren’t public.
ECB president Mario Draghi set the end of this month as the deadline for the covered-bond component of a larger asset-purchase plan designed to combat weak growth and inflation in the 18-nation eurozone.
Concern that central banks won’t be able to arrest a global growth slowdown contributed to a $672bn (€524m) global sell-off in shares yesterday.
An ECB spokesman referred to an October 2 press release stating purchases would start in the second half of the month.
The 24-member governing council gathered in Frankfurt yesterday for its mid-month meeting. Decisions are usually published the Friday after.
The prospect of renewed ECB support has added momentum to the longest winning streak for covered bonds in five years, helping the debt return 0.62% in September, the ninth consecutive month of positive returns, according to Bank of America Merrill Lynch index data.
The premium investors demand to hold covered securities compared with government bonds has fallen to 33 basis points, a seven-year low, the data show.
The ECB is also now seeking outside advice to design and carry out a program for asset-backed securities that’s due to start later in the year.
The ECB wants the purchases, in combination with long-term bank loans and the ABS purchases, to feed through to the real economy and spur higher prices.
Inflation in the eurozone slowed to 0.3% last month, the least in five years.
The bank already bought covered bonds in two programmes from 2009 to 2012.
The ECB is under pressure to show results after a raft of disappointing data sparked speculation that policy makers will be pushed into the large-scale sovereign-bond purchases they have so far shunned.
The ECB’s preferred gauge of inflation expectations is deteriorating despite Draghi’s pledge to do everything within the institution’s mandate to stave off price declines.
Even Germany, Europe’s powerhouse-turned-laggard economy, cut its growth forecasts for this year and next after factory orders, industrial production and exports slumped in August by the most since 2009.
