It is a bit early to tell, and maybe the market will digest it and rally, but already felt like this has largely been priced in. Unlike the first LTRO, where there was some confusion about what it is supposed to do, everyone knows this time, so it is not a matter of understanding the program, it is just a matter of digesting the news. A decent amount of money, but who didn’t know that. And unlike Goldilocks, maybe too big or too small were actually just right, and this middle size does nothing. The 800 banks seems to be confusing people. Good or bad that more banks took it up?
Is this the end of free money from the ECB for now?
Main was 1¼ bp tighter before the headline. Briefly went to 2 tighter (a couple of people smacked bids), but it has gone right back, and from what I’m hearing about the early flows, the street may have been a bit premature to celebrate the program.
The Euro bounced initially and then faded, but again, relatively small moves.
So far Italian 10 year bonds have bounced and are now above their best levels of the day. That is a positive sign and worth watching.
Everyone is asking what the banks will do with the money? Since the banks had to post collateral, maybe the banks have already spent the money and just delivered the ECB the bonds they already bought? Look for most of this just to pre-fund debt.