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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
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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