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ECB's LTRO facts and figures ahead of the crucial June TLTRO-III operation. A thread. (1/n)
The allotment of the TLTRO-III.4 will be published on 18 June. It will be the most important operation in a long time because the interest rate can be as low as -1% from Jun-20 to Jun-21 (including for previous TLTRO-III). (2/n)
ecb.europa.eu/press/pr/date/…
ecb.europa.eu/mopo/implement…
The oustanding amount of all (T)LTRO operations is currently €1023bn, of which:
€418bn in TLTRO-II
€216bn in TLTRO-III
€389bn in weekly LTRO
(3/n)
All (T)LTRO are in this table, with the operations maturing on 24 June highlighted in grey (the settlement date of TLTRO-III.4):
€157bn in TLTRO-II.1
€389bn in weekly LTRO
(4/n)
When commenting on the June TLTRO-III take-up, we should distinguish between gross and net take-up.
For example, if the gross take-up is €1tn, this will result in a net liquidity injection of €454bn (=1000-157-389). (5/n)
Easy? Not so fast. The TLTRO-II have an early repayment option, and the potential reinbursements will be announced on Friday 12 June. The total amount in TLTRO-II 1, 2, 3 is €261bn, and could be switched into TLTRO-III.4 with attractive conditions. (6/n)
ecb.europa.eu/mopo/implement…
I would expect a very large TLTRO-III gross take-up of more than €1.2tn (assuming all TLTRO-II are rolled into TLTRO-III), resulting in a net liquidity injection of at least €400bn.
Adding future TLTRO-III and PELTROs, the total could rise to €1.5tn. (7/n)
€1.2tn sounds big? Well, euro area banks could have more than €2tn in additional TLTRO allowances in theory, which were increased to 50% of eligible loans in March. Here's the estimated breakdown across countries as of May. (8/n)
There will be many others factors driving banks' decisions, including relative pricing, collateral, tiering arbitrage, stigma, etc. But a #TrillionEuroTLTROBaby or more looks likely. Next stop on Friday with TLTRO-II repayments! (9/9)
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Frederik Ducrozet
@fwred
ECB day! A large increase in the PEPP envelope is now consensus after several GC members signaled that June was a live meeting (we expect +€500bn).
The other focus should be on the PEPP composition and modalities, with potential surprises. Our preview: perspectives.group.pictet/sites/perspect…
One surprise I haven't mentioned (because I hate it 😬), is the possibility that the ECB (re-)opens the door to rate cuts as the EUR appreciates, especially in trade-weighted terms.
The probability is low, but not zero, and they could adjust tiering to do so.
One counter-argument is that the FX pass-through to inflation has weakened substantially over the past few years.
Read 3 tweets
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Frederik Ducrozet
@fwred
Here they are. The deviations from capital keys in the ECB PEPP, between March and May 2020.

And the winner is... Italy (no prize for that).
And the loser is... France.
(1/n)
With €37.4bn in BTP purchases, Italy's share stands at 21.6%, above the capital key of 17.0% although not massively so, as I suspected.

Caveat: I'm always applying the capital keys to the total of sovereign debt purchases, i.e. public debt excluding Supranational debt. (2/n)
Here are the deviations from capital keys in % of the total of PEPP sovereign bond purchases. (3/n)
Read 4 tweets
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Frederik Ducrozet
@fwred
ECB accounts: dovish headlines (economic projections were already outdated) and full flexibility stressed on PEPP once again, but also a couple of strange "concerns". (1/3)
ecb.europa.eu/press/accounts…
"The concern was voiced that large-scale interventions in sovereign bond markets could give rise to the risk of “fiscal dominance” and that the programme had to be executed carefully in order not to encourage irresponsible behaviour on the part of governments". 👋@BVerfG (2/3)
"A concern was expressed that lowering the TLTRO III minimum rate 50bp below the DFR could open up the possibility for banks to obtain funds and deposit them at the deposit facility rate instead of increasing their lending to the private sector". Well, that's the goal! (3/3)
Read 3 tweets

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