Marketing Communication
Euro Corporate Watch ECB QE Plus will include utilities
Group Economics Macro & Financial Markets Research Hyung-Ja de Zeeuw +31 20 628 3551 Hyung-ja.de.zeeuw@nl.abnamro.com
DISCLAIMER: This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead. This report is marketing communication and not investment research and is intended for professional and eligible clients only.
19 October 2015
We expect the announcement of an extended and larger ECB QE programme before the end of the year Shopping list will be broadened with more utilities which will bring the total utility pool to EUR 140bn Purchases in the current illiquid credit market will be supportive for credit spreads However, improved investor sentiment and lower yields will boost supply which will have a widening effect on spreads We expect senior non-financials to move in a range of asw+90 to 120 in the medium term
Inflation concerns triggers dovish rhetoric
collateral for monetary policy operations at the ECB. Only
On Thursday, the Governor of the Central bank of Austria and
bonds from utilities from eurozone countries with a minimum
ECB Governing Council member Ewald Nowotny, sounded
tenor of 2 years and a maximum of 30 years will be taken into
increasingly worried about the inflation outlook. According to
consideration.
him, additional steps were necessary to help the ECB reach its objective. This could point to more support for stepping up the
Potential size of the pool of utilities is EUR 140bn
current QE programme to QE Plus. Not only did Nowotny step
The potential size of the pool of utilities that could be eligible
up his dovish commentary, but also the Deputy Governor of
for the QE Plus programme is EUR 140bn. About EUR 44bn of
the Bank of Spain, Fernando Restoy, said the ECB could
those bonds are of French utilities followed by EUR 35bn of
extend QE if the inflation outlook was not compatible with its
Italian utilities and EURS 22bn of Spanish utilities.
goals.
Potential pool of eligible utilities We expect the announcement of an extended and broader
In bn
programme before the end of the year
50
The dovish soundbites increase the chance of a larger and extended ECB buying programme. Indeed, we have the
40
announcement of QE Plus before the end of the year as our
30
base case scenario. We think the ECB will extend its
20
programme to beyond September 2016 and will step up the
10
level of monthly purchases from EUR 60bn to EUR 80bn. This would be big enough to make an impression but small enough to keep some of its powder dry. Pool of eligible assets will be broadened with utilities
FR
IT
ES DE NL BE PT
FI
AT SK
IE
EE
Eligible utilities Source: ABN AMRO Group Economics, ECB, Bloomberg, Markit
As the QE Plus purchase programme progresses through the year, scarcity of eligible paper will become a theme again. We
No separate announcement necessary to add utilities
therefore think the ECB will broaden its list of eligible assets to
In July, the ECB surprised investors by adding three Italian
include utilities. The potential names the ECB could add, is
utilities to the list. The three corporates were SNAM, Terna and
limited by the list of marketable assets that are accepted as
Enel. All are investment grade utilities and all are (partly)
Insights.abnamro.nl/en
Bloomberg: ABNM
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Euro Corporate Watch –
ECB QE Plus will include utilities
owned by the Italian government. Although the ECB classified
Potential pool of eligible utilities in EUR mln
the corporates as Agencies, for investors this step marked a
EDF ENEL ENGIE Iberdrol a Ga s Na tura l Sna m S.p.A. RWE RTE EDF TRANSPORT Veol i a Terna Rete El ettri ca Na zi o.SpA EDP Fi na nce B.V. SUEZ Envi ronment Tennet EANDIS Red El éctri ca Fi na nc. S.A.U. A2A S.p.A. EnBW Interna tiona l Fi na nce BV Hera S.p.A. Vi er Ga s Tra ns port GmbH E.ON Intl Fi na nce B.V. 2i Rete Ga s S.p.A. Ena gá s Fi na nci a ci ones S.A.U. ACEA S.p.A. Teol l i s uuden Voi ma Oyj EWE AG Verbund AG El i a N.V. Nederl a nds e Ga s uni e SPP Infra s tructure Fi na nci ng B.V. Tota l Infra s tructures Ga z Fra nce ESB Fi na nce Ltd. Eurogri d GmbH GIE GDF Suez Al l i a nce Redexi s Ga s Fi na nce B.V. Al l i a nder N.V. ENEXIS Hol di ng NV Ees ti Energi a AS CDP RETI SOCIETA' PER AZIONI Edi s on S.p.A. Ca na l de Is a bel II Ges tion, S.A. Fi ngri d Oyj Energi e AG Oberös terrei ch
policy change because in credit benchmarks the three utilities are classified as corporate credits. This implies that the ECB could simply add more utilities to the shopping list without a separate announcement. In practice we think it is the national central bank that selects the names, not the ECB. Purchases in illiquid market will be supportive for spreads On the day the three Italian utilities were added to the list of buyable assets, spreads tightened. ENELIM 1.966 01/27/25 tightened 20 bps, SRGIM 3.25 1/22/24 with 10bps and TRNIM 4.9 10/28/24 with 15bps according to Bloomberg data. If the ECB decides to add more corporates to the programme, then a point of concern is the illiquidity in the corporate credit market at the moment. Trading in the current market has proven to be very difficult, especially when in block sizes. The addition of utilities to the ECB shopping list will further increase the illiquidity in the market. This will have a supportive effect on credit spreads. However, we think that adding corporate names to the shopping list as part of QE Plus, will also have an upward effect on supply, as risk sentiment will improve and yields will come down. This will have a widening effect on spreads. We therefore think that senior non-financial paper will trade in a range of asw+90 to 120 in the short to medium term.
iBoxx EUR Non-financials senior asw spread
120 110 100 90 80 70 60 50 40 Jan
Mar
May
Non-fins sr. Source: ABN AMRO Group Economics, Markit
Jul
Sep
17,460 14,022 10,658 8,118 7,900 7,100 5,480 5,050 4,598 4,400 4,210 3,950 3,200 3,095 2,724 2,350 2,350 2,283 2,250 1,900 1,890 1,760 1,700 1,663 1,600 1,530 1,400 1,300 1,250 1,050 1,000 1,000 1,000 900 800 800 758 750 600 500 410 300
Source: ABN AMRO Group Economics, ECB, Bloomberg, Markit
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Euro Corporate Watch –
ECB QE Plus will include utilities
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