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.
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