ECB move shakes markets

The ECB shook markets yesterday morning, adding three Italian corporates to the list of names eligible for purchase under its quantitative easing programme.

Utilities Terna, Enel, and Snam were added to the list, even though all three have minority government ownership. The trio’s euro bonds rocketed tighter on the announcement.

While the central bank was rumoured to be considering adding corporates to its QE list in October last year, it only included governments, supra-nationals, agencies and covered bonds — all considered to carry little risk.

“I suspect it’s driven by the ECB’s struggle to find the liquidity on pure sovereign names over the summer, remembering they front-loaded purchases in June anticipating net redemptions in July and August,” said one corporate syndicate banker. “They’re also sending a message that they have fire-power if needed to help markets in the face of the Greece saga.”

Another banker speculated the ECB is concerned about the potential fallout from the peripheral government volatility. “With this new PSPP list, other countries will probably suggest that further corporates are eligible — such as telecoms, railways and airports,” said Bernd Volk, head of covered bond and agency research at Deutsche Bank.

“We were surprised to see names such as Enel and Snam on the updated list and at the same time names like EDF absent. The timing makes sense with the Greek referendum at the weekend. It sends out a clear message of support from the ECB. Liquidity in these names following the announcement was understandably challenging,” said Alex Temple, portfolio manager at ECM.

Meanwhile, a note by BNP Paribas said that the potential universe of bonds that could be included by the ECB could reach as much as €157bn, based on their material state or quasi-state ownership.

As of Monday June 29, the ECB had bought over €94bn of covered bonds, almost €194bn of government, agency and supra-national debt and €8.6bn of asset-backed securities.