Mario Draghi: All In
Michael Sedacca 08:38 AM

Draghi pushed all of his chips into the middle of the table today.

Draghi announced five stimulus measures today, and left the door open for further easing - swiftly. Full statement from Draghi if you'd like to read the original copy.

- Draghi says that rates will stay at low levels for an extended time, but says that will not be lowered further. (this is different from some of the latest media leaks).
- Cessation of SMP bond holdings, which loosens up about EU170b in liquidity.
- Targeted long-term loans, which is probably the Funding for Lending type schemes, for four years (called TLTRO's, ugh more acronyms).
- Fixed long-term loan at main refinancing rate plus 10bps for four years, for the life of the loan. Meaning that banks can get loan funding at 25bps for four years. Banks can repay this early. The initial size targeted for these loans is EU400bln with banks able to borrow 7% of total loans to the Eurozone (market/leaks were looking at 5%). Draghi lays out a number of conditions to determine how banks will obtain these loans, and by how much. They will be conducted in September and December of this year.
- Plans have been made to begin targeted ABS purchases in a simple and transparent way (presumably these won't be sterilized either)
- Extends the fixed-rate full allottment medium-term refinancing operations, as expected.
- Lowers 2014 GDP growth forecast to 1% from 1.2%, it increased its 2015 GDP outlook to 1.7% from 1.5%
- Lowers inflation forecasts across the board. 2014 to 0.7% from 1%, 2015 to 1.1% from 1.3%, 2016 to 1.4% from 1.5%.
- Draghi sees a weak credity supply as weighing on the economic recovery, and all of these measures as a way to increase that.

Reactions:
- Treasuries have sold off hard across the curve, the 30yr is off 5bps after having a crash event.
- Similar activity in German Bunds, selling off, which was the leader for the UST selloff, while peripheral bonds (Italy, Spain) remain strongly bid.
- Euribor curve (European money market rates) has collapsed with the longest dated 2018 rates dropped by 7bps. Dec 2014 is -1.5bps to 16bps.
- US equities are erratically higher, following Europe. Leading in Europe is the Italian FTSEMIB, but French CAC is having a larger risk-adjusted gain at the moment.
- EURUSD touched -100pips on the day but has inched back up a little bit.

No positions in stocks mentioned.

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