This website collects cookies to deliver better user experience. Cookie Policy
Accept
Sign In
The Wall Street Publication
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Reading: European Banks Prepare for Pullback in ECB Stimulus
Share
The Wall Street PublicationThe Wall Street Publication
Font ResizerAa
Search
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Have an existing account? Sign In
Follow US
© 2024 The Wall Street Publication. All Rights Reserved.
The Wall Street Publication > Blog > Markets > European Banks Prepare for Pullback in ECB Stimulus
Markets

European Banks Prepare for Pullback in ECB Stimulus

Editorial Board Published December 22, 2021
Share
European Banks Prepare for Pullback in ECB Stimulus
SHARE

Banks in Europe are issuing a particular type of bond in droves, locking in super low borrowing costs ahead of possibly tighter monetary policy in 2022.

Issuance of covered bonds—a type of debt sold by lenders—recently rose to the highest monthly level since before the pandemic began, according to data from Natixis. Banks sold 20.8 billion euros’ worth, equivalent to around $23.5 billion, in September and 13.6 billion euros in October. In December, banks sold more than last year, although issuance typically slows during this month.

Major lenders that have issued covered bonds this quarter include France’s Société Générale SA, Amsterdam-based ING Groep and Italy’s UniCredit SpA.

Banks are trying to get ahead of central-bank policy shifts by issuing debt while interest rates are still low. Globally, corporate debt issuance has stayed strong, defying expectations that the market would calm after companies built up cash cushions last year due to pandemic-fueled uncertainty. Financial firms raised more debt this quarter than in any fourth quarter in the last 15 years, according to Dealogic.

“The threat of inflation, which will underpin a potential rate increase, or less liquidity provided by the central banks,” is the reason corporations and financial firms have been issuing more debt, said Gabriel Levy, global head of debt capital markets at Natixis.

For European banks, what matters most is the fate of an European Central Bank’s targeted long-term refinancing operations, known by the acronym TLTRO. The ECB supplied trillions of euros to commercial banks though the program earlier in the pandemic and there are currently 1.6 trillion euros of loans still outstanding. However, last week, the ECB said the special conditions under the program, such as favorable interest rates, are expected to end in June.

Covered bonds are a popular alternative funding source for banks in Europe, and are considered to be ultrasafe. Banks package a pool of public-sector loans or mortgages as a new debt security. The bond reflects the underlying creditworthiness of the bank because if a loan or mortgage in the pool defaults, the bank replaces them with a performing loan. S&P Global rates 80% of covered bonds AAA.

Buyers of covered bonds include insurers, pension funds and other banks. The ECB also buys them under its broader asset-purchase program.

“We expect more issuance [of covered bonds] to come in the next year to repay the TLTRO, if the ECB will not renew the facility,” said Stefan Porro, chief financial officer of UniCredit.

Surging consumer prices prompted central banks in the U.S., U.K. and eurozone to outline plans for reducing stimulus last week. The Federal Reserve said it would accelerate a tapering of its bond purchases, while the Bank of England raised its key policy rate. The ECB said it planned to end its emergency bond-buying program by March, but would increase broader asset purchases to smooth the transition.

Higher than expected inflation could force the ECB’s hand to tighten more quickly, with debt markets signaling that the central bank may have to act more forcefully. Spreads, or the difference between a bond yield and a benchmark, have begun to widen in the corporate debt market as investors anticipate less demand from ECB purchase programs, and price in risk from the Omicron Covid-19 variant. BNP Paribas forecasts that the central bank’s spending on corporate debt will halve by the second half of 2022.

The Federal Reserve says it will accelerate the wind-down of its bond-buying program, the biggest step the central bank has taken in reversing its pandemic-era stimulus. Here’s how tapering works, and why it sends markets on edge. Photo illustration: Adele Morgan/WSJ

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the December 23, 2021, print edition as ‘Banks Prep for Tighter ECB Policy.’

TAGGED:MarketsPAIDWall Street Publication
Share This Article
Twitter Email Copy Link Print
Previous Article Both Manchin and Biden Are Wrong About Build Back Better’s Inflation Impact Both Manchin and Biden Are Wrong About Build Back Better’s Inflation Impact
Next Article Codecademy Strikes 5 Million Sale to Prosus-Backed Skillsoft Codecademy Strikes $525 Million Sale to Prosus-Backed Skillsoft

Editor's Pick

I attempted Google’s new Search Dwell function and ended up debating an AI about books

I attempted Google’s new Search Dwell function and ended up debating an AI about books

Google’s new Search Dwell function lets customers maintain real-time voice conversations with an AI-powered model of Search The Gemini-powered AI…

By Editorial Board 6 Min Read
AI at Scale: Mohammed’s Revolutionary Architecture Behind the World’s Fastest Website Builder
AI at Scale: Mohammed’s Revolutionary Architecture Behind the World’s Fastest Website Builder

In an extraordinary technological breakthrough, Abdul Muqtadir Mohammed has fundamentally transformed how…

7 Min Read
Bobby Flay Pays Tribute to Anne Burrell: She was Unforgettable…
Bobby Flay Pays Tribute to Anne Burrell: She was Unforgettable…

Studying Time: 3 minutes Bobby Flay is the newest movie star to…

5 Min Read

Oponion

Elon Musk Sells .5 Billion of Tesla Shares After Deal to Buy Twitter

Elon Musk Sells $8.5 Billion of Tesla Shares After Deal to Buy Twitter

Elon Musk sold roughly $8.5 billion worth of Tesla stock…

April 29, 2022

U.S. Inflation Likely Reached 30-Year High in October

U.S. inflation likely hit a three-decade…

November 10, 2021

Apple’s iOS 15 Has a Fall-Prevention Feature Everyone Should Use

Wearable devices are good at detecting…

September 25, 2021

Michelle Trachtenberg Dies: Beloved ‘BTVS’ Star Was 39

Studying Time: 3 minutes Michelle Trachtenberg…

February 26, 2025

Moderna Drops Pursuit of U.S. Patent for Key Component of Covid-19 Vaccine

Moderna Inc. MRNA 4.53% has abandoned…

December 17, 2021

You Might Also Like

Oil costs anticipated to be impacted following US bombing of Iran nuclear websites
Markets

Oil costs anticipated to be impacted following US bombing of Iran nuclear websites

FOX Enterprise host Liz Claman breaks down the impression on the oil markets and customers amid escalating tensions within the…

4 Min Read
America headed for ‘financial coronary heart assault’ on authorities debt, spending warns billionaire
Markets

America headed for ‘financial coronary heart assault’ on authorities debt, spending warns billionaire

Bridgewater Associates founder Ray Dalio discusses responding to the U.S. debt on 'The Claman Countdown.' Billionaire Ray Dalio, founding father…

4 Min Read
Main oil worth shock looming as Israel-Iran battle threatens crucial world delivery passage
Markets

Main oil worth shock looming as Israel-Iran battle threatens crucial world delivery passage

ExxonMobil CEO Darren Woods describes the impact of the Center East battle on the worldwide oil market on 'Particular Report.'…

4 Min Read
ExxonMobil CEO talks oil provide amid Iran-Israel battle
Markets

ExxonMobil CEO talks oil provide amid Iran-Israel battle

ExxonMobil CEO Darren Woods describes the influence of the Center East battle on the worldwide oil market on 'Particular Report.'…

4 Min Read
The Wall Street Publication

About Us

The Wall Street Publication, a distinguished part of the Enspirers News Group, stands as a beacon of excellence in journalism. Committed to delivering unfiltered global news, we pride ourselves on our trusted coverage of Politics, Business, Technology, and more.

Company

  • About Us
  • Newsroom Policies & Standards
  • Diversity & Inclusion
  • Careers
  • Media & Community Relations
  • WP Creative Group
  • Accessibility Statement

Contact

  • Contact Us
  • Contact Customer Care
  • Advertise
  • Licensing & Syndication
  • Request a Correction
  • Contact the Newsroom
  • Send a News Tip
  • Report a Vulnerability

Term of Use

  • Digital Products Terms of Sale
  • Terms of Service
  • Privacy Policy
  • Cookie Settings
  • Submissions & Discussion Policy
  • RSS Terms of Service
  • Ad Choices

© 2024 The Wall Street Publication. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?