The devil will be in the detail of the ECB conference

5th March 2015 By: Ranko Berich

The European Central Bank Press Conference – 05/03/2015

The ECB has promised a substantial easing of monetary policy and Thursday’s press conference is expected to seal the deal. The euro’s fortunes over the last few trading sessions show just how important this event is and just one question remains – what’s on Mario Draghi’s shopping list?

Because so many government bonds have negative yields, the ECB will lose money, as it pays more for bonds up front than it will ultimately receive in return. In a sense, the ECB will effectively have to pay to lend to many eurozone governments, including Germany, France and the Netherlands. To put current government bond yields in perspective, France has a history of government debt that goes back to at least the 1700s, making today’s negative yields the lowest in more than 200 years.

Draghi has promised to expand the ECB’s balance sheet by no less than 1 trillion euros, but with yields so low the Bank will be forced to look for opportunities where its actions will have the most impact. Institutional bonds are expected to be on the shopping list for this reason.

The devil tomorrow will be in the details and markets are looking for the specifics of what the ECB will buy, how much, and when.