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ECB under the spotlight - Rabobank

FXStreet (Guatemala) - Analysts at Rabobank explained that the speculation as to which assets the ECB will ultimately target in its efforts to not only expand its balance sheet, but more specifically, to reach its EUR3trn balance sheet target, are growing by the day.

Key Quotes:

“With each and every passing comment from ECB policy makers, its becomes clearer that the ultimate goal of the ECB is to target sovereign bond purchases and weaken the euro currency.”

“This is a theme we have discussed at length. Ahead of sovereign bond purchasing, however, the ECB will need to sift through a range of alternative euro zone assets to ensure it has exhausted all avenues before targeting sovereign bonds.”

“We estimate that there exists a total of EUR1.6trn in outstanding euro zone SSA debt. This would of course prove more than enough to help expand the ECB’s balance sheet, though we do not believe this is likely to happen.”

“We argue that in spite of the significant outstanding amount of euro zone, EUR denominated SSA debt, and the existence of certain bonds which could well suit the ECB (namely the European Financial Stability Facility and European Stability Mechanism) the market’s general lack of clear legal definition, myriad guarantee structures and significant concentration of issuance in a limited number of issuers predominantly based in core countries, does not comfortably lend our asset class to direct purchases by the ECB.”

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