RESEARCH: A new LTRO by ECB could prove a more effective tool but must differ from previously Quotes from Societe Generale Cross Asset Research: -In our opinion, a new LTRO by ECB could prove a more effective tool but must differ from previously. A new variable rate LTRO could prove helpful in funding banks still struggling to regain market access. But with a growing stigma attached to taking LTRO funds, the uptake in such an operation is likely to be modest. The economic win from running peripheral government bond carry strategies on a variable rate LTRO is also limited given the compression of peripheral sovereign rates that has already taken place. -A fixed rate LTRO over a 2 to 3-year period, on the other hand, could prove a more powerful tool. First it would signal a real commitment from the ECB to keeping rates low for a prolonged period of time. Indeed, it would be far more powerful than any verbal forward guidance. Second, if well presented, it could remove some of the stigma of the current LTRO and potentially help oil the wheels of lending to the real economy. This would then see a far greater take up.
Posted on: Mon, 28 Oct 2013 13:09:47 +0000
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