Article / 01 July 2016 at 9:02 GMT

From the Floor: Central banks coming to the rescue

Your Next Trade
  • ECB reported to be loosening QE buying rules to ensure enough debt qualifies
  • Bloomberg report of looser QE rules stokes bonds of periphery issuers
  • HY bonds could also benefit from adjustment of ECB's QE programme — Boye
  • Silver surges, also boosting gold
  • Equity rally running out of steam — Garnry
Morning call

By John Acher

With financial markets still reeling from the Brexit shock, central banks seem to be moving to steady the ship and ensure that quantitative easing stays effective, which is spreading cheer from Europe's core to the peripheral bond markets.

“Central banks are finally coming to the rescue after some delay after the Brexit vote,” says Saxo Bank fixed-income trader Michael Boye. "We also heard from the Bank of England governor that they are also considering easing options."

Bloomberg reported on Thursday that the European Central Bank was considering relaxing the rules for its bond-buying programme to ensure enough debt is available to buy in the Brexit aftermath. The pool of bonds eligible for the ECB's quantitative easing has shrunk after investors piled into Europe's safe-haven assets and pushed yields on some so low they no longer qualified.

Periphery power

Bonds of peripheral issuers, namely south European sovereigns but also possibly corporates, would stand to benefit from any such easing of the QE purchasing rules. Many German and French bond yields have fallen — or are moving — into negative ground, so the ECB cannot buy them, and the pool of eligible securities is shrinking fast.

Currently, the ECB's bond-buying programme is tilted towards the largest European economies in accordance with the so-called "capital key", but a loosening of the QE rules would shift the purchasing towards the amount of outstanding debt, Bloomberg said.

"So the higher debt you have, the more bonds the ECB could buy," Boye says. "So, in essence, that's very, very good news for the periphery — Italian and Spanish government bonds."

Futures on Italian 10-year government bonds spiked on Friday morning, erasing all of the losses seen after the Brexit vote and trading firmly tighter than before the UK's referendum last week that resulted in a shock vote to leave the European Union.

Periphery bonds jump, as shown by the Italian BTP (Buoni del Tesoro Poliennali) future.

Italian bond futures

Source: Bloomberg, Saxo Bank

"It means that the ECB can buy a lot more of this debt, and the hidden agenda could be to make financial stimulus possible in these countries," Boye says, adding that those countries could run larger deficits if the ECB becomes a bigger buyer of their debt through a change in the QE rules.

"We should see some support in the high-yield segment as well," Boye says. "One has to wonder if down the road this could be the next target for the ECB."

Possible German resistance to a loosening of the QE rules is one risk to this scenario, Boye adds. "The most interesting part of this will obviously be the response from the Bundesbank. If we hear from them in the coming days, that could change the direction of sentiment in the market."

"But otherwise, high-yield credit should benefit very, very much from this very aggressive tone from the ECB," Boye says, referring also to Saxo Bank's weekly bond market update for further details on the outlook for bonds post-Brexit vote.

Silver shines

In the commodity markets, metals and farm commodities outperformed on Thursday, with silver in particular setting fresh highs.

"We saw silver break the highs from last Friday and continue to surge higher," says Saxo Bank's head of commodities strategy Ole Hansen. "We have hit the highest since 2014."

"So we are trading back above $19/oz this morning."

The gold-silver ratio has broken out of its consolidation range of the past few months. "That indicates that the ratio could contract even further, and that could support a move in silver to back above $20/oz."

"So silver is the one to look out for at the moment," Hansen says. "The surge in silver is supporting gold as well."

 Silver (XAGUSD) surges above $19/oz, gold-silver ratio (XAUXAG) narrows

Equity markets were mixed in Asia and traded in modestly positive territory in Europe on Friday.

“The rally in equities is running out of steam […] That happens with the global economy still balancing on a knife edge,” says Saxo Bank's equities strategy chief Peter Garnry.

"For this rally to extend, we need some positive news," Garnry adds.

European Central Bank

 ECB to the rescue. Photo: iStock

John Acher is a consulting editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios. 


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail