Posted by WARREN MOSLER on June 22nd, 2009
This should bring down the term structure of rates at least out to one year, especially if the program is ongoing at this fixed rate.
And, operationally, it’s a similarly simple matter to set ‘risk free’ rates out the entire curve.
So, for example, bringing down rates out to a year could steepen the entire curve, but a follow up program to do the same for longer term rates could then flatten the curve.
And ‘turning the program on and off’ can add volatility as well.
Asikainen : Long Term Repo Operation (LTRO)
Next Thursday, the ECB will offer the market a funding tender which will let members of the system borrow at 1.0% for up to a year. Yes – term funding, secured by the ECB, at bargain-low rates for a year. You can pledge anything that is BBB or higher, and the ECB will fill unlimited supply at 1.00%. If they get EUR100 billion pledged? Filled. If they get EUR 2 trillion pledged? Filled.