By creating a massive incentive for European banks to buy their
government’s debt issuance up to three years maturity, the new ECB
leader Mario Draghi is clearly seeking to get control over the direction
of Eurozone government bond yields. The dramatic decline in Eurozone
bond yields up to three years suggests he is getting some traction (see
Figure 1). It is also the case that absolute-return investors
may be tempted to “front run” coming bond auctions if they think the ECB
policy is working. On this point, market talk is focusing on an even
bigger amount to be borrowed at the next 3-year longer-term refinancing
operation (LTRO) due on 29 February. GREED & fear has heard
guesstimates of up to €1tn! LINK TO FULL ARTICLE on zero
As the result of the Friday the 13th downgrades, everything gets much more difficult. The slow-motion train crash of economic and monetary union (EMU) has suddenly speeded up. The place in the film where the track breaks up and the railcars spill into the ravine cannot be far away.
The Germans become more self-righteous, because they fear that, if they
stray from the path of orthodoxy, France’s fate will be theirs. The
French become more fractious, the Italians more irritated, the Greeks
Turning the EFSF rescue fund into a usable financing vehicle will become
immeasurably more challenging now that its AAA rating is melting away.
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