Preventing slowdown in Europe
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Prices of the iShares Euro
Government Bond Capped 5.5-10.5yr UCITS ETF (DE) .
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Monetary policy
Announcements of ECB and geopolitical risk continue to support a
positive valuation of European Government Bonds.
Risk Premium of the Ishares Euro Gov Bond ETF, measured as its VaR-95% (1 month horizon), is as
low as 1,82% (Source: Raise Partner, BNP Paribas
- Cortal Consors).
United States is pressing Europe to act one step further.
“In short, status quo policies in Europe have not achieved our common
G-20 objective of strong, sustainable, and balanced growth. The ECB has taken
forceful steps to support the economy through accommodative monetary policy.
But as recent economic performance suggests, this alone has not proven
sufficient to restore healthy growth. Resolute action by national authorities
and other European bodies is needed to reduce the risk that the region could
fall into a deeper slump. The world cannot afford a European lost decade.
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European Central Bank President Mario
Draghi on Wednesday said the central bank is open to embarking on new
measures should its current package of instruments fail to increase inflation.
The ECB has already decided to purchase covered bonds and asset-backed securities,
and it is lending funds to banks at very low interest rates at four-year
maturities. It expects these measures will help boost its balance sheet back
to levels seen in March 2012, or about €1 trillion ($1.25 trillion) more than
current levels.
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The ECB hopes that these measures will
elevate inflation and growth in the currency bloc. Inflation was most
recently recorded at 0.4% versus the previous year, well below the ECB’s
target level of just below 2%. Growth is also sluggish.
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“If these measures are insufficient,
then we can take others, including unconventional ones,” said Mr. Draghi in
the Italian capital.
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Some experts think that the ECB’s next
move would be to purchase corporate bonds and that it would go in this
direction before launching large-scale purchases of sovereign bonds, or
quantitative easing.
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Geopolitical
Risk – Ukraine
Tensions are still high in Ukraine. Western leaders
increased pressure on Vladimir Putin over Ukraine during the G20 summit.
The German chancellor, Angela Merkel,
who reportedly met with Putin late Saturday night, said her country would
consider further economic sanctions against more Russian individuals.
“The present situation is not
satisfying,” she told reporters. “At present the listing of further persons is
on the agenda.”
The push for further action was
supported by European Council president, Herman van Rompuy, who said another
round of economic sanctions to further squeeze Russia was being actively
considered.
“We will continue to use all the
diplomatic tools, including sanctions, at our disposal … the EU foreign
ministers will on Monday assess the situation on the ground and discuss
possible further steps.”
Ben Doherty
theguardian.com, Saturday
15 November 2014 23.43 GMT
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