Goldman Sachs Sees Large-Scale ECB Bond Buying of Limited Effect

The European Central Bank is unlikely to begin large-scale asset purchases to stimulate inflation and such a plan would have limited effect as nations’ borrowing costs are already low, according to Goldman Sachs Group Inc. (GS)

“We doubt that a large-scale asset-purchase program would have a meaningful impact on yields,” Goldman Sachs analysts, including London-based chief European economist Huw Pill, wrote in a client report. “With rates at such low levels, it is unclear how attractive euro-area government yields will look for investors.”

ECB President Mario Draghi said on May 8 that the Governing Council was ready to act at its meeting next month to boost the currency bloc’s economy. He had previously indicated stimulus measures being considered included quantitative easing.

With a rally in the region’s sovereign bonds leaving borrowing costs in the most-indebted nations near record lows, “the likelihood of a large-scale asset-purchase program remains small,” the Goldman Sachs analysts wrote in the report, dated yesterday.

The yield on Spanish 10-year bonds was at 2.95 percent as of 2:52 p.m. London time after falling to 2.83 percent yesterday, the least since Bloomberg began collecting the data in 1993. The rates on similar maturity Italian debt were at 3.05 percent, from a euro-era low of 2.89 percent yesterday.

Consumer prices in the euro area rose an annualized 0.7 percent in April, below half the central bank’s goal of just under 2 percent for a seventh month.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord

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