ECB: Limited scope to tinker with QE reinvestment policy – TDS

Analysts at TD Securities think that the ECB has only limited scope to tinker with QE reinvestment policy.

Key Quotes

“Our base case is for the ECB to anchor EUR rates, through a number of more conventional monetary tools: QE reinvestments, a negative deposit rate, explicit forward rate guidance, and open market operations (MROs, TLTROs). Thus, even though the end of QE argues for higher term premia, the path of normalization will be much slower than anticipated.”

“We remain comfortable with an end-2019 target for 10y Bunds of 0.80%. For the curve, the theme of rebuilding term premia in the long-end should gain momentum. We continue to think that the curve is trading too flat versus the level of front-end rates and hold on to our steepening bias.”