Janus’ Fundamental Fixed Income Team
After disappointing markets in December, the European Central Bank (ECB) delivered an aggressive package of monetary easing measures following its meeting on March 10.
We believe this multi-faceted package will support European risk assets. Despite the magnitude of the ECB’s actions, the market’s initial reaction was mixed, fixating on comments by ECB President Mario Draghi, which inferred that deposit rates may not be lowered below the current level of -0.40%.
Janus’ Fundamental Fixed Income Team believes this fails to account for the measures’ scope and impact on corporate credits.
ECB takes a multi-pronged approach that should flatten the eurozone yield curve
The package unveiled on Thursday hits on multiple fronts, including a cut in all three of the ECB’s key policy rates, highlighted by a 10 basis point (bps) reduction in the deposit rate to negative 40 bps; expansion of the monthly asset purchase program by 20 billion euros to 80 billion euros per month; new issuer and issue share limits; and a series of four targeted longer-term refinancing operations (TLTRO).
Of special note was the decision to include investment-grade euro-denominated non-bank corporate bonds in the mix of asset purchases.
The combination of these measures is structured to incentivize lenders, and should ultimately prove beneficial to credit. The package also suggests that the ECB prefers to use levers other than rates to stimulate the economy going forward.