Wednesday, February 29, 2012

LTRO COMES IN AT 529 BILLION EUROS

Joe Weisenthal

The LTRO basically is this: The ECB has made it so that stressed Eurozone banks can pledge a wide range of capital in exchange for super-cheap funding that lasts three years.

The goal is to insulate the banks from the viciousness of the market for awhile. As an added benefit, some banks are able to take advantage of the cheap funding to buy peripheral sovereign debt, which carries some juicy yields, making a lot of money on the carry.

The first operation in December was big, and since then Europe has rallied strongly. That includes generals tock markets, government bonds, and of course banks. That initially lead to the assumption that this second (and possibly last) LTRO would be even bigger, but now expectations are more tempered.
 

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