ECB 3-Year Loans Will Boost Euro, Sovereign Debt Markets: Analyst Comments

Strategists comment on the European Central Bank’s record allocation of three-year loans. The Frankfurt-based ECB said today it will lend 800 financial institutions 529.5 billion euros ($712.1 billion) in the longer- term refinancing operation.

The comments were collected from investor reports.

Analysts led by Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA in London:

“We expect the stronger-than-consensus LTRO to be positive for risk appetite, a positive tone on euro-zone peripheral bond markets and consequently the banking sector.”

Elsa Lignos, a currency strategist at Royal Bank of Canada in London:

“The LTRO doesn’t solve any long-term problems but then no one expected it to. Our rates strategists argue this should keep periphery spreads in check and we see no reason to turn euro- negative on this and could see it testing $1.35 in the week ahead.”

Luca Cazzulani, a senior fixed-income strategist at UniCredit SpA (UCG) in Milan:

“The result is positive for risk trades. The number of bidders was 800, well above the 523 that participated in the December operation, most likely due to a higher participation from small- and medium-sized banks. Refinancing risk for banks has further diminished and this should be positive for market mood.”

Strategists led by Luca Jellinek, head of European fixed-income strategy at Credit Agricole Corporate & Investment Bank in London:

“There are two key takeaways for core rates direction from today’s LTRO. Firstly, the net addition of funding from the ECB serves to generate net safe-haven demand as much of this cash is simply parked, most obviously in bills and short-term core bonds.

‘‘Secondly, and conversely, the LTRO has and is likely to continue to influence core markets inversely via the risk trade, given the LTRO’s influence on periphery spreads. Today’s boost to risk appetite should serve to boost the periphery and the performance-chasing mentality of the market will likely then lead to further switching out of core markets. We expect the switching out of core markets to be a trend over the next one- to-three months, but we see the increase in liquidity outweighing the switching in the immediate future.”

To contact the reporter on this story: Lucy Meakin in London at

To contact the editor responsible for this story: Daniel Tilles at

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