edfe9799b9e721b85cfd9e7f0277c851513826b895d758301ca3e74bde67d7bb;;[{"layout":"linklist","uid":23915,"publicationDate":"19 Nov 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178540.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJAq2DaQTse-lU2vVf2JFQ2c=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2020_178658.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJOcUrK41MJZKckCJtp_Up7U=&T=1&T=1","protectedFileLinkIt":""},"title":"The UniCredit Macro & Markets - 2021-22 Outlook: The tantalizing prospect of normality","product":"Macro & Markets","synopsis":"<p><ul class=\"ucrBullets\"><li><strong> Macro: <\/strong> New restrictions in Europe and the US will weigh on economic activity in the near term. Vaccines and medical treatments for COVID-19 are expected to gradually support a recovery in 2H21 and set the economy on course for solid growth in 2022. Monetary policy is likely to remain very loose as inflation undershoots target levels.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FI: <\/strong> After marking new record lows in 2020, we expect long-term Bund and UST yields to move higher and reach -0.30% and 1.30%, respectively, by YE 2021, with curves bear-steepening. Real yields are set to stay well below zero over the next year. We forecast that the 10Y BTP-Bund spread will trade around 115bp throughout 2021.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FX: <\/strong> Risk appetite will be a key driver of G10 FX and we think that more weakness lies ahead for the USD. We target 1.28 for the EUR-USD at YE 2021. We also expect the impact of Brexit on the UK economy to send EUR-GBP to 0.94 and we project that EUR-CHF will rise to 1.11. USD-JPY will likely drop below 100.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Equities: <\/strong> With strongly recovering company earnings, we forecast double-digit returns for European equities in 2021, although the path towards higher prices might not be smooth. After a solid 2020, we expect defensive sectors to lose appeal and recommend broadly cyclical exposure.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Credit: <\/strong> Squeezed by asset purchases and low net supply, IG credit spreads seem set to tighten to historical lows in 2021. We think that lower tiers of the capital structure and HY will attract good demand and deliver interesting returns. Yield hunting and solid credit quality also speak for tighter spreads across EM hard-currency credit.<\/p><\/li><\/ul>","hash":"edfe9799b9e721b85cfd9e7f0277c851513826b895d758301ca3e74bde67d7bb","available":"32","settings":{"layout":"linklist","size":"default","showanalysts":"-1","showcompanies":"-1","showcountries":"-1","showcurrencies":"-1","nodate":"0","notitle":"0","noproduct":"0","noflags":"0","dateformat":"d M y","nolinktitle":"0","synopsislength":"-1","synopsisexpand":"0","shownav":"1","limit":"60"}},{"layout":"linklist","uid":23724,"publicationDate":"29 Oct 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2020_178319.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVFcI2-vTFR2nRi29dMwdIovM3G3jxYh8vw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Exploring the impact of EU bonds on the EGB market","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> The ECB\u2019s strong presence in the sovereign-bond market, which we expect to continue through next year, together with robust demand from foreign central banks will further increase the scarcity of safe assets in the euro area. <\/li><\/ul><ul class=\"ucrBullets\"><li> EU bonds could become an alternative to Bunds going forward, given their high rating, provided that their outstanding grows fast. Low ECB buying would also be desirable, to leave most outstanding bonds to private investors. From a portfolio perspective, EU bonds have shown a high and stable correlation with Bunds.<\/li><\/ul><ul class=\"ucrBullets\"><li> Small and mid-size sovereign issuers are likely to face stronger competition from EU bonds, given they will feature similar liquidity. EU bonds also offer good diversification relative to semi-core bonds, as underpinned by their more-stable performance in times of market stress.<\/li><\/ul><ul class=\"ucrBullets\"><li> The EU will become a key player in the EUR-denominated SSA primary market, but we do not expect that the higher liquidity and volume of EU bonds will negatively influence demand for other Supras and Agencies due to the relatively small yield pickup they offer.<\/li><\/ul>"},{"layout":"linklist","uid":22393,"publicationDate":"19 May 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2020_176890.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVFcI2-vTFR2nW1DHnTvta0o0CL0_mPxnUg==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - T-LTRO III: Take-up expectation and market impact","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> At its last meeting, the ECB announced a sizable reduction in T-LTRO III cost. Banks will pay 0.5% below the depo rate if they meet certain lending conditions and 0.5% below the MRO rate otherwise. <\/li><\/ul><ul class=\"ucrBullets\"><li><strong> The attractive pricing should lead to a large take-up: <\/strong> EUR\u00a0900-1,400bn gross and EUR 550-1,000bn net, adding the four operations. Net demand includes EUR\u00a0325bn already drawn from the bridge LTRO.<\/li><\/ul><ul class=\"ucrBullets\"><li> As the more favorable pricing applies to the period June 2020 \u2013 June 2021, we expect strong front loading at the June operation (settlement 24 June 2020, maturity June 2023, results to be announced on 18 June). <\/li><\/ul><ul class=\"ucrBullets\"><li> We expect that use of T-LTRO III liquidity will be more pronounced in the periphery than in core countries.<\/li><\/ul><ul class=\"ucrBullets\"><li> The need to temporary park liquidity may benefit the short end of sovereign curves, in particular in the periphery, where credit premiums and liquidity parking needs are expected to be stronger. Past experience, however, suggests not to expect big moves in credit spreads.<\/li><\/ul>"},{"layout":"linklist","uid":17097,"publicationDate":"23 Apr 20","emaObject":{"protectedFileLink":"\/fileadmin\/Presentations_ex_Marketingpraesi\/Praesentation_Call_ReesForUBK_20Apr20.pdf","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Presentation - Coronavirus und seine volkswirtschaftlichen Auswirkungen","product":"Presentation","synopsis":""},{"layout":"linklist","uid":22027,"publicationDate":"23 Apr 20","emaObject":{"protectedFileLink":"\/fileadmin\/Presentations_ex_Marketingpraesi\/23_APRIL_2020_Update_from_UniCredit_Research_4_3.pdf","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Presentation - The world after the crisis: Questions on debt and growth","product":"Presentation","synopsis":""},{"layout":"linklist","uid":21536,"publicationDate":"13 Feb 20","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2020_175954.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVFcI2-vTFR2nPNmoWwinZoBS4spnPS0v9A==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Governments go green: Facts, figures and upcoming deals","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Investor interest in green bonds is increasing. Healthy demand is mirrored in supply: in 2019, the issuance volume of EUR-denominated green bonds amounted to around EUR 90bn, bringing the outstanding to around EUR 255bn. <\/li><\/ul><ul class=\"ucrBullets\"><li> Euro-area sovereigns have started to issue green bonds in recent years but the market is still in its early stages, with four bonds trading and a total size of around EUR 40bn. The market is growing: Germany, Italy and Spain are due to launch inaugural transactions this year.<\/li><\/ul><ul class=\"ucrBullets\"><li> Data from syndicated deals suggest that long-term investors play a more important role in green sovereign bonds compared to non-green deals. This should be a positive factor with respect to stability of demand.<\/li><\/ul><ul class=\"ucrBullets\"><li> Green bonds issued by supras and agencies tend to trade more expensive than their non-green peers. The premium is less evident for sovereign green bonds.<\/li><\/ul>"},{"layout":"linklist","uid":21095,"publicationDate":"10 Dec 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_175462.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2Ns9AlMl_yM9fb41Glf-ynILQ==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Supply Outlook 2020: Still heavy activity at extra-long maturities","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> We expect gross EGB supply to amount to EUR 860bn in 2020, roughly EUR 30bn larger than this year. This increase will be a result of moderately higher redemptions and deficits and of a different funding mix compared to 2019, with issuance of domestic bonds somewhat larger than this year. <\/li><\/ul><ul class=\"ucrBullets\"><li> A combination of low (even negative) yields and quantitative easing is likely to support demand for duration. We hence expect that issuance at the extra-long end will remain healthy, and possibly in line with that of 2019.<\/li><\/ul><ul class=\"ucrBullets\"><li> Next year, inflation-linked bond issuance is likely to be in line with that of 2019. Due to abundant redemptions, especially from Italy, net supply is likely to be negative.<\/li><\/ul>"},{"layout":"linklist","uid":20947,"publicationDate":"21 Nov 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_175301.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJHMnXtAfRLRLb27Bgb0Reb0=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_175466.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJBCfutLg1NcopqcBL9sGGRk=&T=1&T=1","protectedFileLinkIt":""},"title":"UniCredit Macro & Markets - 2020-21 Outlook: Late-cycle blues","product":"Macro & Markets","synopsis":"<p><ul class=\"ucrBullets\"><li><strong> Macro: <\/strong> Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB is expected to stand pat and focus on its policy review. Economic growth in the CEE region will likely slow as a result of external headwinds.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FI: <\/strong> Government bonds should remain supported throughout 2020. We expect 10Y US yields to fall to 1.50%, with the curve bull-steepening. Room for lower Bund yields is more limited as the bar for further ECB rate cuts is high and the Bund curve is quite flat. The 10Y yield will likely hit -0.50% at end-2020.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FX: <\/strong> Narrower growth and rate differentials between the US and the eurozone offer EUR-USD some upside potential. We expect the GBP to recover but this will likely be slowed by BoE easing and the risk of a Brexit-related \u201ccliff edge\u201d in December 2020.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Equities: <\/strong> We anticipate strong corrections of up to 20% in global equities in 1H20, with some relief by year-end. 2020 will be dominated by low earnings growth in Europe and slowing earnings growth in the US. We think present consensus estimates are too high.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Credit: <\/strong> The late-stage credit cycle warrants defensive positioning in European IG and HY credit, with a preference for non-cyclical sectors. Technical factors such as the CSPP should support credit, though this will likely be balanced by a deterioration in credit fundamentals and the gap to valuations will widen further.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> CEEMEA: <\/strong> EM hard-currency credit is set to post a good, mostly carry-related performance in 2020 of more than 5%. Our preference remains BBB and BB rated credit.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":20764,"publicationDate":"04 Nov 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_175097.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsalH1w8p3dPurdMMtjayMTw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Estimating and discussing the term premium on German bonds","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> We estimate the term premium of German bonds based on the methodology proposed by Adrian, Crump and Moench. We find that the term premium has declined sharply during 2019 and is currently negative.<\/li><\/ul><ul class=\"ucrBullets\"><li> The term premium is strongly correlated with the 5Y5Y forward inflation, which explains 90% of the movement of the term premium. We also estimate, using a linear model, that the ECB monetary policy accounts for 40-70bp of the compression in the term premium.<\/li><\/ul><ul class=\"ucrBullets\"><li> Term premiums at historical lows (and even negative) reduce the appeal of long term fixed income securities. This is especially the case in jurisdictions where the likelihood of a decline in rate expectations is limited, such as the eurozone.<\/li><\/ul>"},{"layout":"linklist","uid":20212,"publicationDate":"11 Sep 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_174503.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsCFMwr5HzJ17_YmUeW60-Ag==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - ILBs pay higher Z-spreads than nominal bonds: We discuss the main drivers","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> In the current environment of low rates, finding yield enhancement opportunities is as appealing as ever. ILBs tend to trade with a pickup relative to nominal bonds. In this note, we examine the key drivers behind this differential.<\/li><\/ul><ul class=\"ucrBullets\"><li> With some easy calculations, we show that this pickup depends on a liquidity premium, on a credit risk premium and on the inflation risk premium of swap inflation relative to sovereign bonds (the latter factor should be relatively small).<\/li><\/ul><ul class=\"ucrBullets\"><li> We estimate a model for the Z-spread pickup offered by ILBs over nominal BTPs and find that the current pickup is not particularly sizable.<\/li><\/ul>"},{"layout":"linklist","uid":19636,"publicationDate":"10 Jul 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_172874.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsU6w4VN1R8ufrSpaKVsG8hw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - BTPi breakeven curve: Too flat and too low","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> BTPis have missed the last leg of the BTP rally and, as a result, now trade at real yields that are very close to the nominal curve. <\/li><\/ul><ul class=\"ucrBullets\"><li> While investors are concerned that Italian inflation may be negatively affected by weak economic growth, current breakeven levels are well below our economists\u2019 forecasts. <\/li><\/ul><ul class=\"ucrBullets\"><li> We show how BTPis in the five-year area would fare in different inflation and real-yield scenarios. This analysis suggests that BTPis are likely to outperform nominal BTPs in most cases.<\/li><\/ul><ul class=\"ucrBullets\"><li> We expect Italy to sell a new BTPi in November. A successful sale is likely to support the asset class as a whole, through a liquidity effect.<\/li><\/ul>"},{"layout":"linklist","uid":19172,"publicationDate":"24 May 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_172362.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsmV7mtWY1YutdeERi5OnkvA==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - SOFR and SONIA derivative markets: Small in size but growing","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> The Libor reform is becoming an increasingly hot topic, particularly as December 2021, the date after which Libor contributions will no longer be guaranteed, approaches. <\/li><\/ul><ul class=\"ucrBullets\"><li> The proposal that is receiving the strongest momentum is to move to benchmarks based on risk-free rates (RFR). The US and the UK have robust transaction-based RFR with a history of at least one year. In the eurozone, the ECB is expected to start publishing \u20acSTR at the beginning of October.<\/li><\/ul><ul class=\"ucrBullets\"><li> In the US and UK, absolute volumes and sizes traded in RFR futures, derivatives and FRN are still very small compared to Libor. However, these markets have been growing and have strong upside potential.<\/li><\/ul><ul class=\"ucrBullets\"><li> Developments in the US and UK can be a useful blueprint for the eurozone. However, as the Euribor will not be directly affected by the December 2021 deadline, pressure to move into RFR benchmarks may be lower than in other jurisdictions.<\/li><\/ul>"},{"layout":"linklist","uid":18816,"publicationDate":"16 Apr 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_170974.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsRTomOaKjVl9lFV8OK8lXLA==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - ECB tiering and money market rates: The devil is in the details","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Tiering has become a hot topic recently. One important issue is that it may create upward pressure on short-maturity money market and repo rates. <\/li><\/ul><ul class=\"ucrBullets\"><li> Tiering has been implemented in other countries with no pressure on money market rates. However, the eurozone has important differences compared to these other countries.<\/li><\/ul><ul class=\"ucrBullets\"><li> Tiering in the eurozone would have to consider two important aspects: that excess liquidity is not distributed evenly across the eurozone and that there are multiple collaterals (i.e. government bonds) with different repo rates. <\/li><\/ul><ul class=\"ucrBullets\"><li> To minimize the impact on MM rates, especially in the periphery, the possibility to benefit from less negative deposit rates should be open only to banks with very large liquidity balances. This might be tricky as excess liquidity is concentrated in the core countries.<\/li><\/ul>"},{"layout":"linklist","uid":18740,"publicationDate":"10 Apr 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2019_170367.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJCFVrSnDW2HLQ-54CjBfLOo=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Chart of the Week - Liquidity that does not flow makes life hard for the ECB","product":"Chart of the Week","synopsis":"<ul class=\"ucrBullets\"><li> Excess reserves in the eurozone have become a hot topic since the ECB hinted that it is studying a tiering scheme for the depo rate to ease pressure on banks. Debate on tiering among investors has gained traction also as weak economic data may require the ECB to strengthen its forward guidance on rates. <\/li><\/ul><ul class=\"ucrBullets\"><li> The chart above shows some key figures on bank reserves. First, and most importantly, liquidity in the eurozone is distributed highly unevenly across jurisdictions. As of February 2019, 70% of excess reserves were in Germany, France and the Netherlands. At the same time, banks in these countries make relatively little use of T-LTROs, which offers liquidity at a rate as low as -0.40% potentially offsetting the impact on bank profitability of a negative depo rate applied to excess reserves. As a result, the costs originating from negative ECB rates are concentrated in these countries. With no exit from negative rates in sight, it is no wonder that the ECB is under pressure to do something. The chart helps to visualize vested interest.<\/li><\/ul><ul class=\"ucrBullets\"><li> Concentration of excess reserves is partly related to the technical aspects of QE but mainly implies that liquidity is not circulating properly. Risk appetite and the growth outlook are very different from country to country and this ultimately discourages core countries from engaging in cross-border activity.<\/li><\/ul><ul class=\"ucrBullets\"><li> Finally, the chart highlights that setting up a tiering system in the eurozone will be a tricky task, unlike in other jurisdictions. Thresholds will have to be set with a uniform rule across countries, but in a market where excess reserves are not uniformly distributed and where there are multiple types of collateral with different repo rates (government bonds issued by different countries).<\/li><\/ul>"},{"layout":"linklist","uid":18470,"publicationDate":"18 Mar 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_170066.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsNOWCS-vPqTdpZhijXIyJ5Q==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Bund-swap has lagged Schatz in cheapening: why we expect a correction","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> The German credit curve has become deeply inverted as swaps spreads have cheapened tremendously at the short end while the 10Y has remained well bid.<\/li><\/ul><ul class=\"ucrBullets\"><li><strong> We see two reasons for the cheapening of the Schatz-swap: <\/strong> lighter QE purchases and the environment of easy monetary policy. This pushed investors to exit negative yielding assets to search for a pick-up. The 10Y has lagged in this move and we see room for the Bund-swap to cheapen gradually.<\/li><\/ul><ul class=\"ucrBullets\"><li> While the Schatz is cheap in ASW, negative rolldown and carry make it tricky to position. We prefer to hold longs in combination with shorts at the long end (to play a normalization of the credit curve) or as a hedge for long periphery.<\/li><\/ul>"},{"layout":"linklist","uid":18135,"publicationDate":"15 Feb 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_169681.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsvFsIe2gTc3YHhaYXz8CyMQ==&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_169737.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2NsVk__5HHS-wtgogqSIYe_pg==&T=1&T=1","protectedFileLinkIt":""},"title":"Rates Perspectives - Euribor and ESTER: Where we stand, where we\u00b4re going","product":"Rates Perspectives","synopsis":"<p><ul class=\"ucrBullets\"><li> In their current forms, Euribor and Eonia will not be feasible benchmarks for new contracts from 1 January 2020. In this note, we look at the key steps that will be taken in the coming months with respect to benchmark interest rate reform.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li> The European Money Markets Institute (EMMI) has proposed a change in calculation method for the Euribor that will make it compliant to the EU\u2019s Benchmarks Regulation. With limited changes in the underlying benchmark definition, the transition should be smooth.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li> With respect to the overnight, ESTER will be the new benchmark. According to preliminary simulations, it will be ca. 8bp lower than Eonia. The existence of legacy contracts (mainly derivatives) still referencing the EONIA will make it necessary to ensure its continuation; EMMI has proposed to calculate it as ESTER plus a spread.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li> While the short-term path is set, the long term outlook remains uncertain. Given the lack of underlying transactions, regulators and the industry are trying to stage a transition from Libor to more representative benchmarks. Any transition, however, will need to take place over a long period of time so that legacy contracts can be dealt with.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":17745,"publicationDate":"10 Jan 19","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2019_168690.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVEGHysWJl2Ns6zwNCeXNSn5_WEAdcnzkSw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Six years after the introduction of CACs in the eurozone: Analyzing the effect on pricing","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Six years after their introduction in the eurozone, bonds with CACs represent 50\/60% of the sovereign debt stock. We look at whether there is any evidence that the presence of CACs affects pricing. <\/li><\/ul><ul class=\"ucrBullets\"><li> We find that, when focusing on bonds that have similar features (coupon, maturity, etc.), there is hardly any evidence that the presence of CACs affects EGBs bond prices in any material way.<\/li><\/ul><ul class=\"ucrBullets\"><li> This finding is not surprising for top-rated issuers. More in general, there is no compelling theoretical reason to prefer CAC vs. non-CAC bonds (or vice-versa) given the experience of Greece, where CACs were introduced retroactively.<\/li><\/ul>"},{"layout":"linklist","uid":17342,"publicationDate":"15 Nov 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_167848.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJJ76llAOMua9CYP3NKCSpUQ=&T=1","protectedFileLinkDe":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2018_168158.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJA1raDHCmwEI3JZ1_X3O2pA=&T=1&T=1","protectedFileLinkIt":""},"title":"UniCredit Macro & Markets - 2019-20 Outlook: Get defensive as growth slowdown looms","product":"Macro & Markets","synopsis":"<p><ul class=\"ucrBullets\"><li><strong> Macro: <\/strong> Global growth is likely to moderate further to 3.4% in 2019, with the slowdown set to intensify in 2020 as the US slips into a mild recession. The Fed will probably hike rates through 1H19 and reverse course in 2020 with three cuts. The ECB will have just enough time to exit negative rates in 1Q20 before eurozone growth weakens materially.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FI: <\/strong> We expect 10Y US yields to peak in the 3.25-3.50% range in mid-2019 before falling back to 2.75% by year end, with the curve inverting. Pressure on core EGBs is likely to be limited. We expect BTP spreads to widen to 350-375bp in 1H19 due to high supply and political uncertainty, before easing back to 275bp later in the year.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> FX: <\/strong> EUR-USD is likely to slip to 1.08 by mid-2019, reflecting the risk picture and the US-eurozone growth differential. A reversal back to 1.20 seems likely in 2020 as the Fed starts cutting rates. Sterling has room to rebound once Brexit-related uncertainty recedes. The JPY and the CHF will likely rise over a two-year horizon.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Equities: <\/strong> We expect 2019 to be a volatile \u2013 and mostly unattractive \u2013 year for equities. Our 2019 year-end index target for the Euro STOXX 50 is 3300, for the DAX 12000 and for the FTSE MIB 19800. 2019 will be dominated by a slowdown in earnings growth globally. We still consider consensus estimates to be too optimistic.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> Credit: <\/strong> Investors should prepare for considerable spread widening in 2019 as there will be a slowdown in earnings alongside an economic deceleration. Credit fundamentals of European corporates are in better shape than those of US peers and a decline in issuance activity will partly offset the substantially reduced demand from the CSPP.<\/p><\/li><\/ul><p><ul class=\"ucrBullets\"><li><strong> CEEMEA: <\/strong> EMFX should continue to perform poorly in trade-weighted terms given the deteriorating trend in global trade volumes, but EMFX-USD could get a lift along with EUR-USD in 2H19. EM credit will likely face pressure in 1H19 but some relief should be seen in 2H19 as the dollar eases and US yields come down.<\/p><\/li><\/ul>"},{"layout":"linklist","uid":16720,"publicationDate":"04 Oct 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_167362.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-W7gOokc4_UKGkd-Hy3Wx_vg==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Measuring rating expectations for BTPs","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> In this note, we investigate extent to which a negative revision of Italy\u2019s rating is priced in to the credit spread. Our analysis indicates that BTPs are significantly cheaper than fair value and already discount a (much) lower rating. <\/li><\/ul><ul class=\"ucrBullets\"><li> Taken at face value, our model suggests that a downgrade would have a limited impact. We think this is a reliable indication of the effect of a one-notch downgrade by one or more agency, with the outlook set to stable.<\/li><\/ul><ul class=\"ucrBullets\"><li> In case of a more aggressive rating action (one notch with the outlook set to negative), the adjustment versus our model fair value is likely to happen with a significant degree of overshooting.<\/li><\/ul><ul class=\"ucrBullets\"><li> The methodology we use is appropriate to analyze how private investors are likely to react to a downgrade. It is not suitable for analyzing the impact (still very unlikely in our view) of a loss of access to ECB refinancing operations and QE.<\/li><\/ul>"},{"layout":"linklist","uid":15989,"publicationDate":"18 Jul 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_165506.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WelAdBLCjwv2CsrEf1G_7vA==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - ECB QE reinvestments: maturity matters","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> Gross QE purchases will be lower next year than this one. However, the ECB may increase the maturity of what it buys to prevent an undue tightening of financial conditions. The residual maturity of the PSPP portfolio is a natural yardstick in this analysis.<\/li><\/ul><ul class=\"ucrBullets\"><li> To keep the maturity of the PSPP portfolio stable, the ECB would have to reinvest at an average maturity of 11\u00a0years and 12.5 years this year and the next, buying around EUR 50bn of bonds with maturities in excess of 12.5 years in 2018 and EUR 60bn in 2019.<\/li><\/ul><ul class=\"ucrBullets\"><li> While a stabilization of the residual maturity of the PSPP portfolio appears unlikely, we expect that the ECB will not allow a sizable decline. This should keep the long and extra-long end of the curve well supported, especially for semi-core countries and the periphery.<\/li><\/ul>"},{"layout":"linklist","uid":15798,"publicationDate":"02 Jul 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_165296.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-Wl83fmK6epfPJRPrdFbpp8A==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - ECB forward guidance: we like 5\/30Y flatteners and sovereign credit-risk exposure","product":"Rates Perspectives","synopsis":"<ul class=\"ucrBullets\"><li> The ECB reinforced its forward guidance in its statement after its June meeting. We look at the main implications this move could have for eurozone fixed income markets.<\/li><\/ul><ul class=\"ucrBullets\"><li> The US experience suggests that duration and credit-risk exposure have paid off well in periods after the Fed reinforced its forward guidance.<\/li><\/ul><ul class=\"ucrBullets\"><li> In the EMU, core yields are currently very low, reflecting a number of growth and political risks clouding the horizon. Accordingly, rather than increasing duration exposure, we prefer curve-flatteners beyond the belly or sovereign credit-risk exposure (for example, via SPGBs).<\/li><\/ul>"},{"layout":"linklist","uid":15505,"publicationDate":"05 Jun 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_164967.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WLoNFhsvJBXHbE69WfFEurg==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Who holds the BTPs? Dissecting Italian public debt investor base","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">Who are the BTP investors' How much debt is held domestically' These are two frequently asked questions. In this note we look at these issues, and how demand by the different investor categories has evolved over time.<\/p><p class=\"ucrIndent\">In a nutshell, Italy\u2019s market debt is held mainly by institutional domestic investors. Non-residents account for 36%. This share includes the Eurosystem (around 3% including the SMP and the PSPP) and the BTPs held by foreign branches of Italian funds (approx. 7\/8%), hence the amount of government debt held by non-Italian investors is hence even lower.<\/p>"},{"layout":"linklist","uid":15017,"publicationDate":"19 Apr 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_164411.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-W4Dmv9B6O0atd94s-0yUFlA==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - 10Y BTP-SPGB spread: wide compared to fundamentals but convergence to fair value is tricky","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">The 10Y BTP-SPGB spread is trading at around 50bp, at the higher end of its trading range over the last six years. Our model for the 10Y BTP-SPGB spread, based on differentials in macro variables, in economic-policy uncertainty and in flows from quantitative easing (QE) and foreign investors, indicates a fair value of 30bp. This is tighter than where the market is trading.<\/p><p class=\"ucrIndent\">We think that the current misalignment between our fair-value model and the actual value of the 10Y BTP-SPGB spread depends mostly on the recent upgrades of Spain by Fitch and S&P to A-, which for some investors removed a concrete barrier (linked to their investment implicit or explicit mandate) to invest in SPGBs and more generally reinforced investors\u2019 perception that Spain is better positioned than Italy in terms of macro fundamentals. Political uncertainty in Italy played a role, as investors attach greater relevance to this in countries with high public debt and low growth potential. <\/p><p class=\"ucrIndent\">We regard the 10Y BTP-SPGB as too wide. However, convergence towards its fair value is tricky in terms of timing. In particular, a sustained out performance of BTPs will require that markets start pricing in a positive rating drift also in Italy.<\/p>"},{"layout":"linklist","uid":14847,"publicationDate":"05 Apr 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_164242.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WFjPeFcDloA2Q8h6v6oWNhw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - T-LTRO II early repayments: why we are not concerned","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">In this note we focus on outstanding T-LTRO II operations given that the first date for early repayment (June 2018) is coming in the radar screen. Early repayments could affect excess liquidity in the eurozone.<\/p><p class=\"ucrIndent\">The incentive to pay back funds as soon as this June is quite small. Repayments may accelerate once the residual maturity of each T-LTRO II falls below one-year (this would be June 2019 for the T-LTRO II.1).<\/p><p class=\"ucrIndent\">Going forward, we expect that excess liquidity in the euro area will remain abundant (mainly because of the APP), keeping money market rates anchored to the depo at least until late 2020.<\/p>"},{"layout":"linklist","uid":14726,"publicationDate":"22 Mar 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_164099.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WK-s5y8Kxt0FmgxTPbhrZtA==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - US 10Y fair value model part II: breakeven inflation","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">In this note, we revisit and update our fair-value model for US breakeven (BE) inflation. This model, together with the one for US real yields, is a building block in our framework for evaluating US yields from a medium-term perspective.<\/p><p class=\"ucrIndent\">The model for US breakeven inflation indicates a fair-value level for 10Y US BE inflation of 2.05%. Combining the fair value for 10Y real yields with the one for 10Y BE inflation, we estimate a fair value for the 10Y nominal yield of around 3%. <\/p><p class=\"ucrIndent\">The model also provides an indication for the long-run equilibrium level of 10Y BE inflation: when the US economy is running at its full potential and the Fed has achieved its goal for inflation, 10Y US BE inflation should be 2.20%.<\/p><p class=\"ucrIndent\">Short-term risks to inflation can arise from an escalation of protectionist measures. However, we expect inflation-pressure related to tariffs (if any) to be short-lived. In the medium term, the negative impact on growth would prevail.<\/p>"},{"layout":"linklist","uid":14448,"publicationDate":"26 Feb 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_163795.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-W31oteEsRkw-wRr-E75wyXQ==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - US real yields are in line with our fair-value model","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">In this note we revisit and update our fair-value model for US real yields. In the current market where yields are moving fast, it is particularly important to have a reference valuation framework.<\/p><p class=\"ucrIndent\">Our model indicates a fair value for 10Y US real yields of 0.60-0.85%. The upper end of the range takes into account the projected Fed balance sheet reduction until year end. Real yields are currently trading about in line with the fair value and are probably already discounting most of the effect of the Fed\u2019s balance sheet reduction.<\/p><p class=\"ucrIndent\">In the coming months, the most important variables that need to be monitored to evaluate the dynamics of real yields are UST supply, demand from foreign investors and the US growth environment. In particular, a slowdown in the US growth outlook would result in a lower fair value for US real yields.<\/p>"},{"layout":"linklist","uid":14239,"publicationDate":"08 Feb 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_163569.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WOwinUv5yvR4A_iRZMMXqUg==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Foreign ownership of EM local currency debt: trends, indices and effects on FX and yields","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">Foreign investment in EM domestic sovereign debt has sharply increased over the last decade. This is a clear sign that EM countries have overcome the so called 'original sin'. We discuss the main reasons.<\/p><p class=\"ucrIndent\">Indexing has been one of the drivers of investing in local currency sovereign bonds. We discuss the major ones and their criteria for inclusion and composition.<\/p><p class=\"ucrIndent\">We analyze the effects of inclusion of a country in EM indices and of increases in foreign ownership on yields and FX. We estimate that for every 1ppt point increase in foreign ownership yields decline by about 12bp. <\/p><p class=\"ucrIndent\">We look at potential candidates for inclusion in EM indices and discuss the case of Serbia, which could be on the path to index admission in 2018.<\/p>"},{"layout":"linklist","uid":4372,"publicationDate":"25 Jan 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_163350.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WSfc0pL8-Nw1KrcsN90zewQ==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - EUR-USD cross currency: no normalization in sight","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">Since the financial crisis, the EUR-USD cross-currency basis swap has traded in negative territory as a result of the break-up of covered interest parity (CIP) theory. <\/p><p class=\"ucrIndent\">We show that the drivers of EUR-USD cross-currency basis swap have changed over time. We find that the most \u201cstable\u201d drivers have been the EUR-USD exchange rate and risk aversion. Money market and credit spreads, as well as central bank balance sheets, have affected the EUR-USD cross-currency basis swap differently during different \u201ccrisis\u201d episodes.<\/p><p class=\"ucrIndent\">Our model indicates that the 5Y EUR-USD cross-currency basis swap is trading relatively close to its fair value and we expect it to remain well in negative territory for the time being, within a +\/-10bp interval compared to current levels. We see moderate risks to the upside. <\/p>"},{"layout":"linklist","uid":4191,"publicationDate":"11 Jan 18","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2018_163165.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVGkpNcRXR5-WizOxQ_qd2pKve_EGsME8pw==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Italy\u00b4s 2018 funding: how to trade it","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">We expect Italy\u2019s gross issuance of M\/L-term bonds to be around EUR 225bn in 2018, EUR 40bn lower than in 2017. Net supply will be mostly covered by QE, leaving only around EUR 10-20bn to be purchased by private investors and limiting the case for spread widening. However, spread volatility will potentially be higher than in recent years as QE purchases will no longer be there to absorb net selling by private investors (if any).<\/p><p class=\"ucrIndent\">The average cost of debt is likely to keep falling this year. At current yields, funding with M\/L term debt would average 1.2%, well below the cost of expiring M\/L-term bonds (around 2.2%). Even with a 100bp permanent shift in the curve, the average debt cost would remain stable.<\/p><p class=\"ucrIndent\">The reduction in supply will be mostly focused on the short end, the belly and the extra-long end, while issuance in the 7-10Y area will be in line with 2017, thus creating a steepening bias for the 5\/10Y. Moreover, in early March general elections will be held in Italy, within a context of elevated uncertainty. Hence, we recommend positioning for a 5\/10Y steepening in 1Q 2018.<\/p><p class=\"ucrIndent\">While indications that gross supply at the extra-long end will be lower than in 2017 should bode well for 10\/30Y flatteners, these trades face strong negative headwind from carry and rolldown. We would instead set up a 10\/30Y box in combination with the swap or the German curve.<\/p>"},{"layout":"linklist","uid":643,"publicationDate":"09 Nov 17","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2017_162521.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVBaZnvdiHIQjHP5HTV6m0S1CZt4h4v7Z7Q==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - UST market: will foreign investors come to the rescue?","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">With the Fed in the process of (slowly) reducing its balance sheet, demand for US debt will have to come from other investors. The downward pressure on UST prices will ultimately depend on their willingness to step in.<\/p><p class=\"ucrIndent\">In this note, we focus on foreign investors, of which central banks and reserve managers (foreign officials) represent the lion\u2019s share. Given their institutional mandate, these investors are probably least price sensitive after the Fed. A scenario in which demand from this source increases would be relatively benign for USTs.<\/p><p class=\"ucrIndent\">Foreign officials have increased their holdings of USTs so far this year, returning close to historical peaks. We expect a further increase next year. This will be only moderate and not enough to cover the decline by the Fed and the large net supply we expect. Hence, other investors (more price sensitive) will have to step in. <\/p>"},{"layout":"linklist","uid":8734,"publicationDate":"22 Sep 16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/fxfistrategy_docs_2016_156448.ashx?EXT=pdf&KEY=KZGTuQCn4lsvclJnUgseVJ1YeU3c7Y14QpzqSMmf3q-PVZCqNwusDg==&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Rates Perspectives - Low yield volatility: the role of central banks and economic data","product":"Rates Perspectives","synopsis":"<p class=\"ucrIndent\">Top-rated government bond yields have become less and less volatile in recent months, despite a very uncertain economic situation. A claim we often hear is that the low yield volatility is mainly the result of unconventional monetary policies. Monetary policy is part of the story: low volatility of economic data also is also relevant.<\/p><p class=\"ucrIndent\">We use the Fisher equation to show that the decline in nominal yield volatility of the last few years is mainly the result of less volatile real yields, while expected inflation has been on average fairly stable. The reduction in real yield volatility goes hand in hand with the reduction in GDP volatility.<\/p><p class=\"ucrIndent\">We also find that policy rate volatility is important to explain yield volatility, while the level of policy rates plays a less important role. The recent decision by the BoJ to target the yield curve should contribute to keep yield volatility subdued in Japan. In the US, UK and eurozone, yield volatility will likely stay subdued until improvement in the growth and inflation outlook revives expected policy rates volatility. <\/p>"},{"layout":"linklist","uid":8228,"publicationDate":"22 Sep 16","emaObject":{"protectedFileLink":"https:\/\/www.research.unicredit.eu\/DocsKey\/economics_docs_2016_156445.ashx?EXT=pdf&KEY=C814QI31EjqIm_1zIJDBJO-KGLhXyIb6UeGsYwcDMVo=&T=1","protectedFileLinkDe":"","protectedFileLinkIt":""},"title":"Economics Thinking - Exploring ECB options for QE extension","product":"Economics Thinking","synopsis":"<p class=\"ucrIndent\">Despite ECB inaction in September, we see a strong case for a six-to-nine-month extension of quantitative easing beyond March 2017. This is warranted to prevent tighter financial conditions once the current program expires.<\/p><p class=\"ucrIndent\">Extending purchases requires changing some of the rules of the game. Action could be taken with respect to technical limits, capital keys and eligible assets. <\/p><p class=\"ucrIndent\">In December, we expect the ECB to raise the ISIN limit and apply the deposit-rate constraint to a portfolio rather than to each purchased bond. The risk\/reward balance of bank bond purchases does not seem appealing for now.<\/p><p class=\"ucrIndent\">A recalibration of capital keys is unlikely to be part of the December package but would be needed if another program extension is required down the road.<\/p>"}]