ECB – the new tool

It is unlikely that the ECB’s new policy tool, TPI (or Transmission Protection Instrument), will change the fate of the Euro or lead to sustained spread contraction in the EU. It will be challenged in the markets and in the courts (as being too close to monetisation of government debt). The document itself looks like a rush job with much of it being vague, perhaps intentionally so. It is unlikely to be used to combat a domestic political crisis in Italy, or anywhere else, unless spreads blow out a lot more. The markets may well test this. We are staying out of Euro but are adding back short Italian 10-year sovereigns at spreads of 230 bp to Bunds.

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