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EGBs sell off as ECB mentions in presser it might not use full PEPP envelope

ECB
  • This has been said before but is new for the press release: "If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation."
  • Although not new, the fact that this has been mentioned in the press release means that it could be closer to the forefront of the ECB's thinking than had perhaps been thought previously. The ECB is framing asset purchases in a way that it could do less if needed (rather than drawing as much attention to it could do more if needed). EGBs have moved lower on this. Whether the sell-off is sustained will depend how much emphasis is put on this in the press conference - the same as in December or more?
  • The only other new part of the statement is this re TLTRO:"Finally, the Governing Council will continue to provide ample liquidity through its refinancing operations. In particular, the third series of targeted longer-term refinancing operations (TLTRO III) remains an attractive source of funding for banks, supporting bank lending to firms and households."
  • That's not really a significant change - the terms of the TLTROs were changed in Dec so this is just a new summary.
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