Yesterday the ECB finally had its 'Whatever it Takes' moment when it announced a EUR750bn emergency bond purchase scheme with its newly titled Pandemic Emergency Purchase Programme (PEPP). The scheme, set to last until the ECB judges that the Covid-19 crisis is over, will see the central bank buy not only government bonds but also private sector bonds, and for the first time, nonfinancial commercial paper. Although the ECB’s purchases will be done according to each country’s shareholder in the bank, the so-called capital key, the ECB said it would be flexible and may deviate from this rule. Moreover, for the first time the purchases will also include debt from Greece, which has been shut out of ECB purchases due to its junk credit rating.
On announcing the package, Christine Lagarde, the ECB President said ‘Extraordinary times require extraordinary action’, adding, ‘There are no limits to our commitment to the euro. We are determined to use the full potential of our tools, within our mandate’. This new package signals a much stronger commitment from the ECB to avoiding the risk of a significant depression in the eurozone region. Interestingly, the ECB left its -0.5% deposit rate unchanged just as it did last Thursday.
Off the back of the news, European government bonds rose. At the time of writing, Greece 10-year debt is up 14 points with Italian 10-years up nearly 7 points.
And yesterday the UK was the latest country to close its schools, nurseries and colleges, taking effect from tomorrow ‘until further notice’ in the hope of slowing down the spread of the coronavirus. There are also numerous reports that London could be facing a lockdown similar to those in other European cities. It’s believed London, with its population of over 9 million people, has become a ‘city of superspreaders’ with the virus spreading at a faster rate than the rest of the country. Sterling remains under pressure having plunged to a 35-year low against the dollar.