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ECB's Asset Monetization Advisor Says There Will Be No Full-Blown QE

When two months ago, the ECB announced it would hire Blackrock as an advisor for its "Private QE" ABS and Covered Bond purchase program, many eyebrows were raised, mostly out of cynical curiosity whether the ABS purchased would be those structured by the "advisor" itself. Well, according to today's detailed fresh off the printer, pardon the pun, term sheets on the program, it appears that the eligible securities will be almost exclusively of European origin, so one can probably exclude Blackrock advising the ECB on buying ABS structured by Blackrock itself.

However, what one can not exclude is that Blackrock, having worked with the ECB for an indefinite period of time, is intimately familiar with the long-term strategy of the biggest jawboning back in the world: Mario Draghi's ECB. Because while Draghi will say anything, as he started two years ago with his infamous "Whatever it takes" speech, his actual policy options are painfully limited. It is in this context that all those betting that public, US-style, QE will inevitably follow the private QE which is set to last at least two years, may want to sit down and read the following note from Reuters, which warns "investors loading up on some of the euro zone's riskiest government bonds on expectations that the European Central Bank will buy them are making a mistake" according to none other than BlackRock's head of European and global bonds said on Wednesday.

Trust us, if anyone knows, he does. From Reuters:

Market expectations that the ECB will be forced to resort to sovereign bond-buying as part of a broad-based quantitative easing (QE) scheme have shot up in recent months as the bloc tips towards deflation.


"The market is very much taking for granted that quantitative easing through a government bond purchase programme is coming and I think there are many, many obstacles to that still to come," Scott Thiel, who oversees assets worth around $100 billion for BlackRock, told Reuters.


"If people are buying Spanish and Italian bonds because they think the ECB is going to buy them from them, I think that is a mistake."

It doesn't get any clearer than that, muppets:

Many bank analysts predict a full-blown QE programme in the next six months, while some see it as early as November, as the ECB's efforts to ensure the recovery appear to be falling short.

Economists polled by Reuters saw a 40 percent probability of the ECB purchasing sovereign bonds, up from 25 percent at the start of the month.

It will be further ironic if as part of his depature, Bill Gross knew all of this, and upon his departure left Pimco, which remains overweight on Italian government debt, left the Newport beach fund with the biggest easter egg yet. Because the last thing the Total Return Fund can afford is to not only be pillaged by redemptions but also to see a substantial plunge in the market value of its holdings.

At the start of the year, Pimco, which manages $2 trillion (1.58 trillion euros) worth of assets globally, said its position in high-yielding government bonds of the euro zone periphery, such as Italy's and Spain's, was the largest ever.


BlackRock, the world's biggest asset manager, said in May that one of its main bond funds - which Thiel oversees - had cut its holdings of peripheral euro zone government debt to their lowest since the height of the crisis.

So who will be right: Pimco, which is in disarray, and deserpately scrambling for any yield anywhere in the world, or the company which the ECB has hired to advise it on what increasingly appears will be the ECB's only foray into monetization?