The market is selling off in the wake of the ECB's 3-year LTRO, but considering the gigantic rally yesterday, and the tendency for investors to "sell the news" this isn't that remarkable.
In a note out this morning, Goldman explains why the big result was a positive.
As we wrote in detail in our report of December 13, 2011, ECB guarantees term-funding stability,
underpins banks during the sovereign storm, large take-up is an important positive. Key reasons are:
(1) banks now have scope to significantly pre-fund 2012/13 wholesale issuance needs; (2) fixed pricing
at 1% effectively detaches bank and sovereign funding costs at the 1-week to 3-year duration; (3)
pressures for forced deleveraging should reduce;(4) deposit pricing (and NIM pressure) should fall;
(5) a somewhat positive revenue effect.
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