Page 20 - September October 2018 Disruption Report Flip Book

MONETARY POLICY
SEJPATN.U-AORCYT.20210818
So what is the problem? The problem is ...that there is no demand whatsoever for Eurozone sovereign bonds at these yields. And you would have to think twice at least in some of the countries to even start getting the attention of the secondary market. And that is a big problem.
That is a big problem because, even if the ECB continues pumping money into the economy, what ends up happening is that it only disguises the risk in sovereign bonds, as we are seeing right now (but moderately). But risk appears – for example on the iTracks – now that you see the yields of corporate bonds and, obviously, in equities. Because cost of capital is going up.
So the situation in the Eurozone is missed opportunity from the stimulus, too high expectations of return to growth, we’re back to 2009 bad habits from governments, and an evident slowdown in the growth of the major economies of the Eurozone. (MACROVoices, Daniel Lecalle, 10/18/18)
Fitch Ratings’ Robert Sierra and Brian Coulton wrote:
The European Central Bank’s purchases of Eurozone sovereign debt have far outweighed net issuance since 2015, raising the risk of increased bond market volatility as quantitative easing comes to an end. QE has more than covered the increase in sovereign debt during the QE period by a factor
of 1.5 in Italy. France, and Spain, while in Germany, QE purchases have accompanied a fall in the overall stock of debt outstanding.
... The cumulative purchases made by the central banks of Germany, France, Italy and Spain have, in aggregate, amounted to almost 3 times as much as the increase in those four countries’ aggregate stock of debt since the end of 2014. The corollary of this has been a reduction in holdings by other domestic investors and (with the exception of Spain) by non-residents. (Fitch Ratings, Robert Sierra and Brian Coulton, 10/24/18)
The Eurozone’s growth rate falls sharply to at an annualized rate of 0.6% in the third quarter, the weakest in five years and well below the annualized rate reported in the second quarter (1.8%). PwC senior economist Barret Kuyplian, warned the slow-down could cause the European Central Bank to reconsider ending its QE plan in December, saying:
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