ECB

ECB weakens Italy doom loop by bending bond rules

16 Aug 2017

The European Central Bank is buying more Italian bonds than its rules allow. That helps lower the country’s borrowing costs and allows its banks to cut exposure to their sovereign. With elections and political risks looming, it may have to take an ever more pragmatic approach.

Euro rally will only speed its own reversal

21 Jul 2017

The single currency has hit a two-year high against the U.S. dollar. That will depress import prices when inflation is still too low. Any hint that a stronger exchange rate will prompt the European Central Bank to leave monetary policy loose for longer will push it down again.

Cool credit markets could be own undoing

10 Jul 2017

Corporate bonds shrugged off the recent “taper tantrum” that hit government debt and equities. Investors may be betting that central banks will only slowly tighten policy, supporting demand for riskier assets. Yet unruffled markets may only hasten policymakers’ rush for the exit.

Bank of Japan can hold out as Western yields rise

7 Jul 2017

The central bank underlined its determination to keep 10-year yields close to zero by offering to buy unlimited bonds. The BOJ has the tools, market dominance and motivation to hold firm. Tighter policy in the West should help Japan by weakening the yen and importing inflation.

Draghi’s taper tizzy is sign of dangers to come

29 Jun 2017

Comments by ECB chief Mario Draghi drove up bond yields and the euro, despite later protestations that markets had misread him. The ado owes more to investor complacency than fuzzy talk. It highlights traders’ twitchiness and the challenges in withdrawing ultra-loose policy.

Draghi’s hints have more clout than Yellen’s deeds

28 Jun 2017

ECB chief Mario Draghi had more market impact by alluding to higher rates than Fed Chair Janet Yellen did by hiking them two weeks ago. That fits a recent pattern: central bankers who have yet to tighten policy are more apt to upset expectations – and that’s what moves prices.

Italian bailout is setback for Europe bank regime

26 Jun 2017

Intesa Sanpaolo is taking over the good bits of two smaller failed lenders, leaving taxpayers to foot a bill of up to 17 billion euros. Protecting savers is politically expedient. But the rescue exposes a gaping hole in Europe’s new regime for dealing with troubled banks.

Spanish bank rescue poses several big questions

8 Jun 2017

Seizing Banco Popular and selling it to Santander averted a panic without a bailout. But it’s not clear how regulators calculated the hole on the lender’s balance sheet, or why they previously deemed it solvent. Investors need answers to have faith in Europe’s resolution regime.

Hadas: Misbehaving wages keep economists baffled

7 Jun 2017

Conventional economic theory says wages start to rise when labour markets tighten. It isn’t happening in the U.S., Britain, Japan or Germany. Many semi-plausible excuses and partial explanations have not solved the mystery. That leaves central bankers in a quandary.

Spanish bank mess could make or break CoCos

1 Jun 2017

Banco Popular’s contingent capital bonds have collapsed in price, for fear they will be converted into equity. If they do so without causing chaos, it would show that CoCos are a viable instrument in a real-world bank rescue. A failure to trigger would confirm the opposite.

Euro zone “safe” bonds would be anything but

31 May 2017

The European Commission has suggested creating low-risk securities by pooling sovereign bonds. The idea is to reduce banks’ exposure to governments. But risks would still be interconnected. Without a common tax base and joint liability, no pan-euro zone debt can be truly secure.

ECB snared by bond-buying ambiguity

19 May 2017

European lawmakers have called for more transparency from the European Central Bank over its corporate bond purchases. The demands are flawed: the ECB discloses quite a lot and clarity can backfire. Yet it’s a reminder of the risks from central banks meddling in private credit.

Commerzbank limbo underscores its need for a deal

9 May 2017

The German bank’s first-quarter return on equity was a pitiful 3 pct, and its targets are uninspiring. In most sectors, a company destroying value for shareholders would be taken over. In banking, regulatory and practical uncertainties still stand in the way of logical tie-ups.

For credit, ECB is more perilous than Le Pen

27 Apr 2017

The dwindling likelihood of far-right Marine Le Pen becoming French president has sent the cost of borrowing for risky companies to near-record lows. A correction could come once the European Central Bank withdraws support for bond markets – which is more likely if Le Pen loses.

Dixon: Start preparing for fourth Greek bailout

3 Apr 2017

Despite a last-minute wrangle over pensions, Greece is likely to get the next chunk of the money due under its current bailout plan. But this will only buy Athens time until the middle of 2018. After that, a new programme, and more fraught negotiations, will probably be needed.

ECB’s mandate is best left murky

30 Mar 2017

Two members of the central bank's executive board have mused on its accountability, after a report criticised the ECB for overreach. It indeed pulled some pretty off-piste moves during the euro zone crisis. Yet clarity could constrain its ability to fight future crises.

Bad bank is poor solution for Europe’s dud loans

14 Mar 2017

Policymakers have called for a pan-European fund to soak up the region’s dud assets. But the record for such schemes is mixed, and hard to tailor to Europe’s diverse problems. The risk is that it becomes a backdoor bailout. Governments would be better off fixing bankruptcy laws.

Draghi is tugged towards tricky end of ECB easing

9 Mar 2017

The European Central Bank boss sees less need for more stimulus. It’s hard to say otherwise when inflation is on target and likely to stay near there. Yet Europe’s fragile economy makes ending asset purchases a treacherous task that he will want to postpone as long as possible.

Markets’ latest distortion: riskless company debt

7 Mar 2017

Some 200 billion euros of corporate bonds are trading below interbank swap rates – usually seen as a floor for credit risk. That renders one measure of companies’ creditworthiness redundant. This distortion comes courtesy of central bank meddling and German parsimony.

Euro zone revival carries sting in tail

4 Jan 2017

After years in the doldrums, increased business activity and slightly rising prices are good news for the single currency area. Besides, inflation is still a long way below the European Central Bank target. But a sustained pickup would expose the euro zone's two-speed recovery.