GlobalCapital: How do you expect negative deposit rates to impact the market?
Gotrane, Cafill: I wouldn’t expect much of a direct impact on covered bond supply. Looking at demand, some banks may need to look for high quality assets at the short end of the curve to invest liquidity that was previously invested with the ECB and some of that may well find itself being invested in covered bonds. In the end, you will have two factors that will influence the covered bond market. On the one hand, lower funding needs by banks at the short end of the curve. On the other, stronger investor demand for short dated covered bonds. Both factors should contribute to a spread tightening.
El Amir, UniCredit: It is going to discourage a lot of banks from parking excess liquidity with the ECB, and should encourage them to invest in high quality liquid assets such as covered bonds and government securities that are eligible for level one of the LCR.
Burmeister, DeAWM: I expect that negative rates will increase the opportunity cost for holding cash. But I don’t think they will necessary drive up lending. If you can’t make loans to the clients that you feel are credible enough then you won’t lend.
Mugat, AGI: They should also benefit risk assets most and will facilitate market access for high beta names, especially those banks in peripheral Europe.
Pimper, Commerzbank: They could force banks to invest more in short dated assets, such has T-Bills, leading to ever lower yields. International banks could swap euros into hard foreign currencies and deposit that liquidity in the respective foreign country’s central bank.
Costa, CGD: Banks with excess reserves deposited at the ECB will be incentivised to move them. To that extent they might reduce debt issuance in the short term, but in the medium to long term negative deposit rates shouldn’t have a big impact on supply.