ECB's Praet speech takes a long look at the.....>

ECB: ECB's Praet speech takes a long look at the term premium on the yield curve

and how forward guidance and the buying of duration reduce it. 

- However "distinguishing between the effects of the APP and of forward

guidance" is less straightforward, he argues.

- He says that both measures are complimentary and do roughly the same thing.

Also interesting is that Praet refers to today's theory that the amount of

duration and for how long it will be taken out of the market that impacts the

term premium. 

- "In this respect, keeping the size of the APP portfolio constant at a certain

nominal level does not necessarily safeguard a given amount of accommodation"

because the portfolio would age and so decrease the stimulatory effects.

- Praet argues that "As time passes, the endogenous loss of duration in the

central bank portfolio is bound to exert increasing upward pressure on the term

premium". He also says that re-investments of long dated-bonds may not be large

enough to offset this ageing effect. 

- In sum, he points to a natural decline of monetary policy stimulus from PSPP.