- Following the announcement of a bold policy package at the March 12 meeting the ECB intensified its attempts to fight the pandemic fallout and to restore confidence in EMU.
- Yesterday evening it surprisingly launched the Pandemic Emergency Purchase Program (PEPP) with a volume of € 750 bn that can discretionarily be used to fight the coronavirus fallout.
- Most important, it could be extended and some self-imposed restrictions like the issuer limit would likely be scrapped if needed.
- This unprecedented monetary policy move jointly with the commitment of the Eurogroup to do “whatever it takes and more, to restore confidence and support a rapid recovery” goes in the right direction as it helps to stabilize markets and to improve the demand side of the economy.
- Overall, markets reacted mixed but positively with euro area sovereign bond spreads narrowing. The 10-year BTP-Bund spread receded by about 50 bps to towards 200 bps whereas the iTraxx crossover has merely narrowed from 707 bps to 670 bps, only a small move towards the 300bps seen a month ago.