Timothy Anderson On Greece And The ECB

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Timothy Anderson of MND Partners discussed EuroZone developments with Benzinga Thursday. Anderson commented that the ECB would begin its bond buying program on March 9 and would be "limited to Investment grade Public Sector debt" which "would exclude Greek debt for now." Anderson said that he interpreted the buying program parameters as only applying to "sovereign debt issued by Eurozone members" at this time." There was no mention that high grade Corporate debt may be considered" and the ECB will be "limited to buying 33 percent of the total stock of a bond issuance from a single sovereign issuer." When asked about bonds with a negative yield, Anderson explained that such "bonds may be purchased as part of the program to the extent that the negative yield is not greater than the current ECB deposit rate, which is also negative." Anderson acknowledged that "this is potentially confusing as the world of negative yielding bonds is a recent phenomena." Anderson continued by walking through the process. With the rate at the ECB deposit facility at  negative 0.20 percent, then, as an example, "if the Central Bank of Italy puts 1B Euro at the ECB, the Bank of Italy will pay 0.20 percent to keep the funds on deposit there." The negative interest rate structure "clearly incentivizes the Central Banks in the EuroZone to instead make those funds available for C&I loans or other avenues that would facilitate economic growth," Anderson claimed. "With a current rate of negative 0.20 percent at the ECB deposit facility, the ECB would potentially buy sovereign debt with a negative yield of no greater than negative 0.20 percent. Under that scenario the ECB would not be incurring a net capital loss on any negative yielding sovereign debt they purchased under their QE program." Anderson also addressed Greece and noted that over half the questions at Thursday's presser involved questioning Draghi on the ECBs support of the country. Draghi was prepared for the questions and, in Anderson's view, offered a "strong statement" as follows: "The governing council agreed to a further €500m of emergency liquidity assistance to Greek banks, taking the total amount of emergency loans available to the Bank of Greece to €68.8 billion. The last thing that can be said is that the ECB is not supporting Greece."   According to Anderson, Draghi also "reinforced that the ECB can only buy investment grade sovereign debt as part of their QE program," which excluded debt from Greece and Cyprus. Lastly, Anderson also noted that Draghi emphasized that Greek banks are currently solvent and must remain solvent for the Greece to qualify for, and access, the Emergency Liquidity Authority's short-term funding.
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Posted In: ExclusivesTimothy Anderson
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