David Buik of BGC Partners expects bond yields to fall in the coming months due to this liquidity injection. "We have seen Italy come down from 6% to 5.5%. We have seen Spain threatening to dip below 5%. This is a big improvement.
In yet another effort towards liquidity infusion in the European economy, the European Central Bank (ECB) today disbursed around 530 billion euros of cheap three year loans to the European banks.
The ECB's long term refinancing operation (LTRO) saw a total of 800 bidders for its loans which come at an interest rate of 1%.
David Buick of BGC Partners expects bond yields to fall in the coming months due to this liquidity injection. "We have seen Italy come down from 6% to 5.5%. We have seen Spain threatening to dip below 5%. This is a big improvement. We have seen Portugal come down from 15 or 16% down to 12%, " he added.
However, he cautions that the 10 year bond yield in Greece is still around 34% despite agreements being in place for the bailout. He feels that there is a huge scepticism in the market if this bailout will be helpful.
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: What it above market expectations what are your first thoughts?
A: Just slightly better. We were expecting somewhere between 417-500 billion euros, we got 529 billion euros. Immediate market reaction has been quite good. Bonds markets are still relatively flat. We have to remember that it has lost some of its bite in the course of the last few weeks and that is very encouraging. But some of the bank shares have done rather well particularly, Spanish and Italian banks. Even Barclays in UK rallied by about 1.7% as a result of this news.
I don't think we need to read too much into it apart from the fact that it is an endorsement of how short of liquidity the European banking sector is. This is an absolute declaration of help from the ECB and the European Union. The ECB now has got a huge balance sheet and is prepared to stand behind the banking sector.
Sir Mervyn King, the Governor of the Bank of England has said that UK banks really didn