Bond Buying Won't Boost European Economies

Most countries in Europe are financing themselves at short-term negative interest rate bonds at the moment - but will this be enought to boost the eurozone economy?

J.P. Morgan Asset Management 7 November, 2014 | 3:56PM
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Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, J.P. Morgan Asset Management Global Market Strategist Vincent Juvyns discusses the implications of the ECB meeting yesterday.

Yesterday’s ECB meeting shows that investors may have underestimated the significant of the measures undertaken in June. Draghi provided additional detail on how they will proceed with asset-backed securities (ABS) purchases and gave very early indications of how those measures may bear fruit.  I see the first signs for example in the positive impact on the declining Euro. But as the ECB has stated, it will take time to assess the impact of these measures on inflation expectations. For the continued return to health of the credit markets and the financial system in Europe, reviving the ABS market is critical.

In my view, European banks will now participate with more engagement in the TLTROs programme now that the asset quality review results are in the rear window.  That combined with the ECB asset purchases should help to trigger more life in the ABS market, where the investor community thus far has failed to act as a first mover. The ECB is clearly immersed in the details of implementing this programme and ensuring all the regulatory requirements are met; we heard more from them about that progress today.

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J.P. Morgan Asset Management  is the investment arm of JPMorgan Chase & Co. and it is one of the largest active asset managers in the world.

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