Draghi/ECB Sets Stage for Unlimited Sterilized Bond Purchases

Bloomberg Television is reporting that the European Central Bank president Mario Draghi is going propose embarking on unlimited sterilized bond buying, although it will refrain from attempting to reach public rate caps. By making this sterilized, that implies that they will sell certain bonds or assets to purchase the less attractive assets. The long and short is that the aim is to do this without turning on the printing presses to merely print money and therefore avoiding direct inflationary pressure.

Today’s news is ahead of the key European Central Bank meeting. It is expected as of now that the ECB will trim rates by 0.25%, but today’s news may or may not alter or influence the formal policy changes.

Keep in mind that Janney was out with a note just yesterday calling for a disappointing ECB stage. One note stood out:

There’s a great deal of pressure on the central bank to do something, and we believe Draghi will cut the benchmark rate 25bps, but not execute on sovereign purchases. Much of the reason stems from a Sept. 12 scheduled German court decision on the constitutionality of the ESM/EFSF bailout mechanisms. Out of (reasonable) self interest, the ECB doesn’t want to start buying sovereign debt, only to have the rug pulled out from under it.

JON C. OGG