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14 Jan 2015
European bonds rally on ECJ ruling – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman team comments on the ECJ’s ruling for ECB’s OMT, and further note that the ruling cleared the path for ECB to start its bond-buying program which made European bonds to rally and sent EUR/USD lower.
Key Quotes
“The preliminary indications by the European Court of Justice are that the ECB's Outright Monetary Transaction initiative was "in principle" consistent with the ECB mandate. Even though the opinion by the Advocate General Villalon is non-binding, the signal is important. The court defended broad discretion from the ECB in "framing and implementing" monetary policy.”
“Moreover, the Advocate General pushed back against judicial review of ECB's activity, arguing that the central bank needs broad discretion, and has expertise and experience that needs to be respected. The final decision is expected near mid-year, but the advice of the Advocate General is often followed.”
“The euro fell on the news, making a marginal new low below $1.1730, and European bonds rallied. Although the decision was on the OMT, the implication is that it does not pose an obstacle to a sovereign bond buying program that could be announced as early as next week.”
“There are other factors that are helping underpin European bonds, such as the continued decline in oil prices, and commodity prices more generally, and the decline in US 10-year yields to the mid-October flash crash low.”
Key Quotes
“The preliminary indications by the European Court of Justice are that the ECB's Outright Monetary Transaction initiative was "in principle" consistent with the ECB mandate. Even though the opinion by the Advocate General Villalon is non-binding, the signal is important. The court defended broad discretion from the ECB in "framing and implementing" monetary policy.”
“Moreover, the Advocate General pushed back against judicial review of ECB's activity, arguing that the central bank needs broad discretion, and has expertise and experience that needs to be respected. The final decision is expected near mid-year, but the advice of the Advocate General is often followed.”
“The euro fell on the news, making a marginal new low below $1.1730, and European bonds rallied. Although the decision was on the OMT, the implication is that it does not pose an obstacle to a sovereign bond buying program that could be announced as early as next week.”
“There are other factors that are helping underpin European bonds, such as the continued decline in oil prices, and commodity prices more generally, and the decline in US 10-year yields to the mid-October flash crash low.”