The ECB Changes Its Mind Which Bonds It Will Monetize, Then It Changes It Again

Jon Alternative Media, Blogosphere, Economy

To get a sense of just how chaotic, unprepared, confused and in a word, clueless the ECB is about just its “private QE”, aka purchases of ABS, which should begin in the “next few days” (but certainly don’t hold your breath) – let alone the monetization of public sovereign debt – here is Exhibit A. Because if you were confused about what is about to happen, don’t worry: it appears the ECB hardly has any idea either, because it was just on October 7 when 40 ABS bonds were dropped from the ECB’s “eligible for purchasing” list. And then, just a week later, the ECB changed its mind about changing it mind, and reinstated 19 of the ineligible bonds right back!
Citi’s Himanshu Shrimali explains the stunning flip flop that only the ECB could have pulled off without losing all its credibility (perhaps because it no longer really has any):
As straight forward as the details of the ECB’s ABS purchase programme (ABSPP) released on 2 Oct 2014 seemed, many market participants were taken by surprise on 7 October when about 40 bonds became ineligible under the central bank’s collateral framework and 19 of them were again reinstated on 15 October. We understand that the bonds were initially removed from the list of eligible securities because of inadequate servicer continuity provisions – a requirement which came into force on 1 October 2013 but had a 1-year transitional period until 1 October 2014. We believe the reinstatements occurred because the ECB had earlier misinterpreted the adequacy of servicer continuity provisions in these bonds. Some of these expelled bonds, which include Spanish and Portuguese RMBS, have lost 2 – 3 points in cash prices, according to our trading desk. A similar tiering is evident in the broader ABS market with ineligible bonds demanding 40 – 50bp spread pickup over eligible bonds.
Don’t worry though, and just repeat: “the bonds fell and rose not because of ECB frontrunning, or lack thereof, but because of fundamentals.” Keep repeating until it becomes the truth.

This post was published at Zero Hedge on 10/19/2014.