CB buying debt, especially sovereign, while markets are screaming for yield is counter productive to the stated goals of most developed economy CBs - the so called QE is not "easing" when interest rates are at these levels; it is TIGHTENING
Common sense has left the building
PAR11:20:32 GMT - 09/07/2016
September 7, 2016 12:05 pm
The ECB, bond buying and the capital key: a Q&A
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After 18 months of aggressive monetary easing, inflation and growth in the eurozone is still in the doldrums. This has prompted investors to speculate that the European Central Bank is poised to extend its quantitative easing project — QE3 — again.
But there’s a snag. The bond markets rally has reduced the stock of bonds eligible for eurozone QE, and if the ECB wants to expand the programme, it will need to consider loosening its own rules.
When policymakers converge in Frankfurt this week, the governing council is expected to discuss the possibility of deviating from capital keys used to calculate sovereign bond purchases — freeing up billions of euros of fresh bonds to buy.
Restrictions are self-imposed, so change is possible. But any alteration would require Germany’s approval, so the hurdle for abandoning the capital key is high.
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