Monday Market Minute | Sep 9, 2019
The ECB announces a comprehensive stimulus package including rate cuts and QE restart. The global yield hunt intensifies, benefiting Canadian alternative credit.
What Moved
The European Central Bank delivered a sweeping stimulus package on September 12: a 10 basis-point rate cut (deepening negative territory to -0.5%), a restart of quantitative easing at EUR 20 billion per month with no end date, and a tiered reserve system to cushion banks. The scale exceeded market expectations. European sovereign yields plunged further into negative territory, with the entire German government bond curve trading below zero.
Why It Matters
ECB's aggressive easing intensified the global hunt for yield, directly benefiting Canadian private credit strategies. European institutional capital — pension funds, insurers, family offices — faced the prospect of guaranteed negative returns on their fixed income allocations. Canadian private credit, offering 7-12% on well-secured loans in a AAA-rated sovereign, became increasingly attractive to international allocators. Several Canadian alternative managers reported inbound inquiry from European institutions for the first time.
Signal to Watch
The Fed's September 18 decision was expected to deliver a second rate cut. A 25-basis-point reduction would bring the fed funds rate to 1.75-2.00%, narrowing the gap with Canada and reducing pressure on the BoC to follow suit.