Meet the Swiss - Financial Markets Outlook

05/28/2009

Next week, the ECB will unveil the details of its EUR 60 billion covered bond purchase plan. Since the ECB will be keen to portray the purchase programme as a eurozone-wide initiative, it will probably shy away from ex ante dividing the 60 billion between the various Eurozone countries.
The plan to purchase covered bonds seems to make sense. They are a low risk asset class and represent an important source of longer-term funding for many banks. However, the plan does little to ease (any remaining) capital adequacy issues of banks.
With its covered bond purchases and the extension of the maturity of its longer-term refinancing operations, the ECB is effectively taking the Swiss route of unconventional policy easing.
Looking ahead, what else has the Swiss National Bank (SNB) to offer? FX intervention obviously is a “no-go” for the ECB and the chance that the ECB will follow the SNB in buying corporate bonds seems limited at this stage.
However, the ECB might well follow the SNB’s example in issuing debt certificates, to help facilitate the “exit strategy” from the unconventional stimulus