22.04.2015
Starting this month, the European Central Bank (ECB) will be buying up a lot of European corporate bonds. The idea behind APP was to drive up sovereign bond prices by flooding money into the sovereign bond market, which reduces the implied interest rate on sovereign bonds. The ECB plans to continue APP for at least another year, and starting this month, it will add CSPP to its program.
It turns out that flooding the sovereign bond market, as the ECB has been doing, hasn’t been enough to do the trick. Interest rates on corporate bonds have already been dropping ever since the ECB’s announcement of CSPP in March. The ECB also appears to hope that some of those who sell bonds to it via CSPP will use the money from the sale to buy consumer or investment goods, rather than merely buy other financial papers from secondary financial markets – since the latter does nothing for the real economy. If there’s to be a boom in aggregate demand, someone has to step up and start spending a great deal of fresh money on new real-economy projects. Ireland remains especially exposed to another financial shock because of the extremely high levels of public and private debt.
Select your preferred way to display the comments and click "Save settings" to activate your changes. This bill is coming to you from the same fuckers that think buying gold is a terrorist activity. The only consolation is that they will be totally surprised if the music stops playing and all the seats are taken before they have any idea that there is a problem. US always wants to lead and inspire the world, so one would think US would be quite proud to see Europe finally getting it. In fact, to cath up and keep up with the US - and, its co-dependent financier and manufacturer China - the EU should print, monetize and quantitively ease to the tune of a couple of hundred percent more than the US for quite a while. The aide replies that yes, that was brought up as a concern and that the language had been changed to allow the President to determine if arrested individual should be processed in a civilian court.
I replied that this solution sounded an awful lot like a dictatorship as opposed to what was laid out in the constitution and that I was outraged that the Senator felt this was in any way an appropriate solution to my concerns. He said he'd pass along my concerns (my interpretation of that reply was that she didn't give a fuck about the constitution and shut the fuck up or we'll arrest your ass and put you in prison without trial by peers). If the dictator er president has this power granted already then why have the need for a new law? That not one single DC or NY crook has been arrested, tried, hanged, and quartered while their family watches. So you're stating that SPY is overbought.  Or do you use RSI as the higher the number, the "not bought enough" it is?
Nevertheless, he added that the presence of a military force other than NATO’s is very useful for this region, because “it will prevent the outbreak of an armed conflict,” Izvestia quoted Kravchenko as saying. This is the euro-oligarchy and their monetarist empire throwing hissy fits as they crumble to dust. NATO does want Israel to engage in war as that would automatically pull all arab and moslem (Indonesia, Nigeria, 50% of France, etc) nations directly into this war. Israel knows the trap was set by the british when they partitioned Mandate Palestine the way they did (in order to create a perpetual war zone). After the ECB ventured into the world of quantitative easing as a policy response to deflationary threats and lack of growth in the Eurozone, the markets are abuzz with the latest venture, known as corporate bond purchases starting June 8th. The European Central bank, embarked on Quantitative Easing when it announced on January 2015 that the central bank would purchase sovereign bonds to stimulate growth in the European economies. As part of the QE expansion announced on March 2016, the corporate bond purchases start on June 8th, 2016.
A corporate bond is basically a debt security that is sold to investors (creditors being the right term) from a corporation or a company.
A government bond is a bond or an IOU issued by the national or sovereign government and is denominated in the country’s national currency. The ECB’s corporate bond purchase program, officially known as the Corporate Sector Purchase Program or CSPP is a program targeting purchase of investment grade euro-denominated bonds. Secondary markets as the name implies is where the bonds purchased in the primary market can be sold and even traded.
Due to the relatively new nature of this undertaking the ECB said that it will start with buying a few bonds for starters and gradually increase the pace and scope of its purchases. European companies, in anticipation of the corporate bond purchase program already started issuing bonds.
At this point in time it is unclear on what impact the corporate bond purchases will have in terms of economic growth or inflation. This WSJ report mentions that, in 2015 European companies borrowed 24.7% of their money in the bond markets according to Association for Financial Markets in Europe with the remainder coming from bank lending. While it is still too early to tell how the CSPP will help the average household, the main theme remains that with companies now having access to cheap lending, keep an eye out on the European equity markets in the medium term horizon. This article from Bondvigilantes has more details on the ECB bond purchase program including a potential list of companies that are eligible under the program, with BMW, Telefonica, Deutsche Telekom a few names from the list as well a possible sector wise breakdown.
RISK WARNING: Forex and other leveraged products is risky and not suitable for all investors, and can potentially lead to substantial losses of your capital. Judges of the constitutional court in Karlsruhe, Germany, from left: Monika Hermanns, Peter Huber, Andreas Vosskuhle the President of the court, and Herbert Landau announce their decision Tuesday June 21, 2016.
The program was never used, but the mere existence of an unlimited monetary backstop from the central bank helped lower the borrowing rates for governments struggling with excessive debt, easing the financial crisis. InvestingChannel: How Long Will It Take For The ECB To Own All Sovereign Debt Of Spain, Germany, France? At the current rate of purchase of sovereign bonds the ECB will have have purchased all sovereign debt issued by Spain in 9 years and Germany in 8.8 years.


Distortion in the corporate bond market has picked up since the ECB has started buying corporate bonds.
The above chart shows a comparison between the yields of bonds eligible to be purchased by the ECB and bonds with the same rating in the same sector that are not eligible for the ECB.
Corporate bond yields have collapsed across the board since the ECB’s announcement, but even more so for eligible bonds. Fully-tailored financial solutions for the serious investorThrough different choices of fund type, access to sophisticated investment productsHonourplus Cloud - build up your wealth whilst retiring comfortably. FRANKFURT (Reuters) – The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying program which will pump hundreds of billions in new money into a sagging euro zone economy.
The ECB said it would purchase sovereign debt from this March until the end of September 2016, despite opposition from Germany’s Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.
Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing program will release 60 billion euros ($68 billion) a month into the economy, ECB President Mario Draghi said. By September next year, more than 1 trillion euros will have been created under quantitative easing, the ECB’s last remaining major policy option for reviving economic growth and warding off deflation. The prospect of dramatic ECB action had already prompted the Swiss central bank to abandon its cap on the franc against the euro.
Draghi has had to balance the need for action to lift the euro zone economy out of its torpor against German concerns about risk-sharing and that it might be left to foot the bill. The euro fell against the other major currencies on Thursday after the European Central Bank launched a large scale quantitative easing program in an attempt to combat slowing growth and inflation in the euro area. ECB President Mario Draghi said it will make monthly purchases of €60 billion per month, starting in March and continuing until late 2016.
Draghi acknowledged the action the ECB took last year was “insufficient” to ward off the threat of deflation in the region. The annual rate of inflation in the euro area fell into negative territory last month, dropping 0.2%. Draghi said the risks to the euro area recovery remain to the “downside” but added that today’s action should bolster the outlook.
The SNB had imposed the cap in September 2011, in a bid to stave off deflation and prevent the continued appreciation of the safe-haven franc. Economists at the International Monetary Fund are urging the European Central Bank to stop yanking interest rates further into negative territory, warning it will take a toll on the region’s already struggling banks and reduce lending to businesses and households.
In a blog post on the IMF website, economists Andy Jobst and Huidan Lin say any additional cuts that would push rates further below zero will encounter diminishing returns and threaten, at this point, to do more harm than good.
While Carney ruled out the use of negative interest rates in Britain, the yield on shorter-dated U.K. If data in the eurozone point to a marked slowdown in the currency union, analysts also expect more easing from the ECB at its September meeting. The ECB first took its deposit rate below zero in June of 2014, in a controversial move seen as one of the last resorts to boost stubbornly low inflation and anemic growth in the region.
Since then, the ECB has made three additional cuts, leaving the deposit rate at negative 0.40%. Some argue there isn’t any demand for cheap loans among customers, which only make the negative rates an unnecessary burden on lenders. We look at why it has decided to do so and what effect the measure may or may not have short-term.
The reason is that governments are constrained by European rules limiting the size of budget deficits from borrowing and spending more money, which is what would be necessary to overcome unemployment, put upward pressure on wages, and ultimately generate some consumer price inflation. Creditworthy corporations can already raise money quite cheaply to finance new investment in plant or equipment. Most sellers are institutional investors like banks or pension funds, not households or consumers, and institutional investors generally reinvest in existing financial assets, not in new projects. It’s not clear anyone other than national governments or the European Union have the financial heft necessary to restoke demand and unleash a new growth cycle.
But alas, it is indeed fun to moan and marvel at your neighbor while your own house sinks into the quicksand you built it on and crocodiles eat your children.
If you had to chose you way of dying, a heart attack would be preferable over a long drawn out affair. But yalls keeps dat readin n dem lerninz up, yousa be outs dis hea house ana right back in da field. The long-planned mission comes, providentially, at the very moment when it could help prevent a potential conflict in the strategically important Middle Eastern country. So what are corporate bond purchases how are corporate bond purchases different from regular bond purchases and what impact will it have on the Eurozone economy?
While initially starting with a monthly bond purchase program of 60 billion euros, the ECB quickly ramped up their QE purchases by another 20 billion in March 2016, exactly a year since the QE purchases began. For example, the German bonds or bunds are denoted in Euros while the US treasuries are denoted in US dollars. These bonds are of course issued by non-bank corporations that are established in the euro area.
The bond purchases will be made by six national banks including Belgium, Germany, Spain, Finland, France and Italy. However, the ECB will be publishing every week the amount of corporate bonds it holds or has purchased with details and also assuring that the bond purchases will be market neutral.
The court decision is a victory for the ECB and its ability to intervene in financial markets on behalf of its interest-rate policy, and a defeat for skeptics who think its stimulus and anti-crisis programs have gone too far.Opponents had argued that the bond purchase offer violated the European Union treaty's ban on the central bank using its powers to print money to finance governments. 3, 2015 file picture President of European Central Bank, ECB, Mario Draghi smiles prior to a news conference in Frankfurt, Germany, following a meeting of the ECB governing council. Investors think the central bank may announce such large-scale purchases of government bonds at its Jan.


4, 2014 file photo, President of European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany, following a meeting of the ECB governing council. The ECB never bought any bonds, but the mere offer reassured markets.Opponents in Germany, however, challenged the program in court.
6, 2014 file photo, President of European Central Bank Mario Draghi speaks during a press conference following the meeting of the governing council in Frankfurt, Germany. 22, 2014 file photo, President of the European Central Bank Mario Draghi addresses the Committee on Economic and Monetary Affairs, at the European Parliament building, in Brussels. Denmark cut its main policy interest rate on Thursday for the second time this week after the ECB announcement, aiming to defend the Danish crown’s peg to the euro. The move should also strengthen demand and support money and credit growth and help return inflation back to the bank’s 2% target.
Mark Carney, in early August decided it didn’t need more evidence of how Brexit is affecting the U.K.
That happened after the BOE failed to buy as many bonds as it wanted in its QE program, highlighting the limitations of the bank’s easing program.
That could come in the form of extending its QE program by six months and possibly delivering another rate cut. This would also facilitate the pass-through of improved bank funding conditions to the real economy,” they said.
By charging financial institutions money to deposit cash with the central bank, the idea was that the banks instead would start lending more, which would spur consumption and growth. Japan, Switzerland, Denmark and Sweden also are experimenting with negative borrowing costs, with varying degrees of success, according to analysts.
APP involved ECB buying government bonds from eurozone member nations in vast quantities using its flexible balance sheet.
APP has successfully caused sovereign bond interest rates to fall to very low levels, but that hasn’t resulted in governments borrowing more.
More importantly, since the resumption of the SMP program in August, the ECB has bought €131 billion in PIIGS bonds, or about $176 billion. So most Europeans party on like there is no tomorrow, completely oblivious to what is going on and the happy few are already tormented with the collapse they see coming. It could be to raise cash quickly to fund new ventures rather than issue new equity to the shareholders. The CSPP was launched to run alongside the ECB’s Asset Purchase Program which involves buying sovereign bonds. Analysts speculate that the ECB could end up purchasing as much as 5 billion euros in corporate bonds. AB InBev is expected to use the cash raised from the debt sale to fund its acquisition of rival SABMiller. Some believe that the ECB’s direct (debt) financing of companies could send the bond yields lower and thus reducing the financing costs for the companies. The ECB offered to buy bonds of countries facing high sovereign borrowing costs, as long as they submitted to financial reforms. The German court had passed the decision to the European Court of Justice, which last year upheld the bond purchase program but imposed conditions, and then returned the case to the German court.In Tuesday's ruling, chief judge Andreas Vosskuhle said that the German central bank, the Bundesbank, could take part in the bond purchases so long as the conditions specified by the European Court were upheld. Germany's constitutional court has rejected a challenge to a European Central Bank bond-buying program credited with helping keep the euro currency union from breaking up in 2012. An adviser to the European Court of Justice says the European Central Bank's offer to purchase government bonds of troubled countries, a key backstop in Europe's struggle against its debt crisis, is compatible in principle with the basic EU treaty.
They say the ECB overstepped its authority and violated a European Union treaty ban on the central bank directly helping governments.Villalon's opinion is preliminary, before a decision by the court's judges later this year. Many existing factories are producing well below their capacity, because consumer demand is below the potential production level. This works out to just under $60 billion per month (and no, it is not sterilized when the sterilizing banks exist solely courtesy to ECB funding as noted before) and is just modestly less than what the Fed monetized on a monthly basis at its peak QE, and about 30% more than what the Fed does now during Operation Twist!
By purchasing sovereign bonds, the ECB hopes that its actions will send the bond yields lower and thus euro area economies would be better able to finance their budget deficits apart from already lowering euro area interest rates into the negative to spur lending.
Corporate bonds typically attract a higher interest rate and in case of insolvency, bond holders are usually given first preference. In anticipation to the ECB’s CSPP program, many US based companies are looking to get a foothold in the European markets to take advantage of the low financing opportunities. Please consult your financial advisor before you start trading and to understand your risk tolerance. The court in Karlsruhe said Tuesday June 21, 2016 that the ECB had not exceeded its legal powers and rejected arguments from legislators and a citizens' group that the offer to purchase government bonds of troubled countries violated German law. Corporate bonds can be long term (10, 20, 30 years) or short term (a year or less than a year). Government bonds are traditionally considered a safe haven as the debt is backed in full faith and credibility of the government that is issuing it. Under the ECB’s latest publication outlining the rules for buying the Corporate Bonds, any corporation that has activities in the financial sector is in-eligible for bond purchases under the CSPP. God help this once great constitutional government because it is currenly being run by losers. Unlike a shareholder, a bond holder does not own any equity in the company and therefore has no voting rights. According to Merrill Lynch, corporate bonds sector is the second largest, only next to the government bond markets with nearly 30% of outstanding bonds in the global markets coming from the corporate sector.



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Comments Ecb bond purchase march

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