ECB Stimulus Is Unlikely to Spur Growth, Eagle’s Camp SaysCordell Eddings
Further European Central Bank stimulus will fail to boost inflation and revive the region’s economy, putting a ceiling on how high U.S. yields can climb, said James Camp, a money manager with Eagle Asset Management.
The ECB will start buying covered bonds this month and asset-backed securities by the end of the year, ECB President Mario Draghi said at a press conference in Naples, Italy, after leaving interest rates unchanged at record lows. “These purchases will have a sizable impact on the balance sheet,” he said, without specifying a volume.
“It has very little chance of being successful,” Camp, who oversees $5.5 billion in fixed-income investments in St. Petersburg, Florida, said in an interview at Bloomberg headquarters. “They are importing the U.S. quantitative-easing experiment into an economy with much tougher structural issues to deal with. It’s not clear that QE worked that well in the U.S.”
The Federal Reserve is forecast to end its bond-buying this month after the central bank spent the past six years quadrupling its balance sheet to more than $4 trillion in an effort to stimulate the economy.
Having already cut the ECB’s benchmark interest rate to a record low of 0.05 percent and offered cheap loans to banks, the Governing Council is still facing the threat of deflation in an 18-nation economy that stalled in the second quarter and risks dropping into its third recession since 2008.
Camp said he sees value in 10-year notes at 2.5 percent, with comparable global debt yields so low and inflation contained. U.S. 10-year notes yielded 1.49 percentage points more than their German counterparts after reaching 1.57 on Sept. 17, the most since June 1999.
“With global yields so low, the U.S. continues to stand to benefit,” Camp said.