Speculation of ECB QE rule change drives periphery yields lower - MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the 10-year yields in Italy have plunged with Bloomberg reporting that the ECB will alter its rules on buying sovereign debt in order to ensure an available pool of securities to buy.

Key Quotes

“The 10-year yield initially jumped after the Brexit vote but from a closing high of 1.56% a week ago, the yield has plunged to 1.18%. The report suggests a shift away from the ECB capital key formula to one of determining purchases based on size of outstanding market.

This was always a possibility as the pool of available securities shrunk and the Brexit vote that has driven yields on German bunds even lower may now force a decision on this sooner rather than later. A decision to alter the rules would also open up the scope to do more – another consideration the ECB must be pondering given the potential hit to the euro-zone from the Brexit vote.”