Fitch: ECB to extend its bond buying programme beyond March 2017

The US-based rating agency, Fitch ratings, came out with their latest report on the European credit markets outlook on Friday, highlighting that growing political risks are likely to test the Eurozone credit markets, which is likely to result in the ECB extending its QE program beyond March 2017.

Key Quotes:

“European corporate credit markets have displayed surprising resilience following the US presidential election - contrasting with the sharp sell-off in long-dated sovereign bonds.”

“However, a sterner test may yet be in store for credit markets in 2017 as European political event-risk mounts, the reduction in volatility from ECB quantitative easing (QE) wears off, and medium-term inflation expectations rise.“

“Eurozone core inflation is still very low and Fitch expects the ECB to extend its bond buying programme beyond March 2017.”

“However the broader reflationary theme now playing out in global bond markets and rising headline CPI inflation could see markets become more nervous about an earlier-than-expected tapering of ECB purchases.” 

“This comes at a time of rising political risk in Europe, starting with the Italian referendum on 4 December, followed by elections in Austria, the Netherlands, Germany and France in 2017.”

“Further gains for anti-establishment candidates or parties in 2017 will be a test of Europe's fragile stability and could cause a more severe repricing of risk in credit markets from current QE-distorted levels.”