ETFs to Benefit from ECB Bond Buying

Low-cost exchange-traded-funds, with their wide choice of sliced market exposures across all asset classes, are particularly apt to take advantage of the ECB's recent measures

Jose Garcia Zarate 11 March, 2016 | 11:11AM
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The European Central Bank (ECB) announced on March 10 a package of measures to further increase the accommodative stance of monetary policy in the eurozone. Aside from the widely expected moves on interest rates, the ECB also increased the amount of the monthly asset purchases from €60 billion to €80 billion. More importantly, aside from government bonds, the QE programme will now also include bonds issued by non-bank eurozone corporations with an investment grade rating. The ultimate aim is to bring down financing costs for non-financial eurozone corporations in order to encourage investment growth in the real economy.

The full technical details of this newly-extended QE programme are not yet available, but we know that the purchases of non-bank corporate bonds will commence towards the end of the second quarter of 2016 and that the QE programme will remain in place until at least March 2017, or beyond, if necessary.

Since its introduction, the ECB’s QE programme has provided solid support to eurozone government bond valuations. It may now do the same for non-bank corporate debt. This creates a tactical investment opportunity, albeit one where investors should focus on short-to-medium-term bond capital appreciation rather than yield income.

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Jose Garcia Zarate

Jose Garcia Zarate  is Associate Director of Passive Strategies Research for Morningstar Europe