EuropeanSep 17 2014

TwentyFour: ECB may buy government bonds on secondary market

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The European Central Bank (ECB) could be set to buy eurozone government bonds, embarking on outright quantitative easing, according to TwentyFour Investment Management.

While the ECB is prohibited by law from directly buying government bonds, Gary Kirk, founding partner of TwentyFour, said it can still buy the bonds on the “secondary market”.

Mr Kirk said that to achieve its aim of introducing €1trn (£794bn) in stimulus, the central bank will need to resort to buying government bonds.

Earlier this month, the bank’s president Mario Draghi said it would start buying asset-backed securities issued by private sector firms in October.

While buying these securities is not technically defined as conventional quantitative easing, TwentyFour said it should be seen as such.

But Mr Kirk said “the chances are quite high” the ECB does actually engage in full-blown quantitative easing, which he said was alluded to in the bank’s most recent meeting, which reported that some members “wanted to go further” than just the asset-backed security purchases.

Mr Kirk said the prospect of full-blown easing was a “supporting argument for holding on to peripheral sovereign debt at this stage”.

But he warned he “[does] not think that this action is just around the corner”, and that the central bank will want to wait and see the impact of its current actions first.