ECB advisers: Fed tapering impact on euro zone bonds limited

FRANKFURT Fri Jan 31, 2014 5:57am EST

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FRANKFURT Jan 31 (Reuters) - The U.S. Federal Reserve's gradual decreasing of its bond purchases is likely to have only a limited impact on euro zone bond markets, a European Central Bank (ECB) working group said.

The minutes of the Jan. 21 meeting of the group, which consists of experts from the ECB and commercial banks, also showed that a minority of members warned that a positive performance in the bond market could end abruptly.

The Fed started tapering in December and, since the ECB group meeting, has decided to trim its bond purchases by another $10 billion a month.

Markets in countries with large current account deficits, such as Turkey and Argentina, have suffered steep losses in part because of the prospect of less U.S. monetary stimulus, but the euro zone has remained placid.

"The progressive reduction of the size of the Federal Reserve's programmes for purchasing U.S. treasuries and mortgage-backed securities is expected to be well absorbed," the minutes showed.

"Some (limited) spillovers to euro area government bond yields cannot be excluded," they said, adding that the group did not see any particular risks to the bonds of stressed euro zone countries, given the underweight portfolio positions of non-European investors in these securities.

The bond markets have seen "very positive performance" this year, but "some members warned that the bull bond market could also end abruptly", the summary of the discussion showed.

Turning to asset-backed securities, the group had only meagre hopes that the market would grow significantly.

"The prospects of a meaningful revival of the European ABS market were deemed to be low on account of the lack both of a sufficiently large investor base and of interest on the part of potential originators to issue at high yields," the minutes said.

(For a copy of the meeting summary, click on: here#Summary) (Reporting by Sakari Suoninen; Editing by Pravin Char)

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