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More Would Probably Not Have Been Reasonable

22 October 2015 by lberuti

The ECB conference gave a big boost to the market today. All risky assets benefitted from the dovish tone of Mr Draghi. Barring effectively pulling the trigger on more QE right away, he could in fact not have been more dovish. He met all market expectations regarding further policy easing as he mentioned expanding the Central Bank’s asset purchase programme and possibly lowering interest rates further. As it stands, people were led to expect at the next ECB meeting, that will take place in December, an increase of the monthly pace of QE (possibly to €70bln from its current rate of €60bln), an extension of the length of the programme (possibly to December 2016 from the current September 2016 scheduled maturity), and a nudge to the deposit rate that will push it further into negative territory possibly at -0.30%. Unsurprisingly the reaction to these potential measures was most felt in Europe, and iTraxx Main which went through technical levels (and closed at 74bps) is now trading 6bps tighter than CDXIG in the US.