... and investors cautiously welcome it

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Fund managers have said the second LTRO announcement is broadly in line with what they expected in terms of size but its impact is unlikely to replicate the first round of funding.

Commenting in the immediate aftermath of the ECB’s announcement, which revealed €529.5 billion is to be made available to Europe’s banks, fund managers offered a cautious greeting to the liquidity measure.

Speaking to Citywire Global, Grant Peterkin, senior manager with Ignis' fixed income team, said: ‘Liquidity actions are good at sorting difficulties in the short term, however, long term fiscal difficulties in the European economy remain.’

Another fund manager, who wished to remain anonymous, said: ‘Domestic banks in peripheral Europe have not got access to liquidity and that should help peripheral Europe.’

‘But, in reality, it is not solving the underlying problems of growth contracting and I would foresee a fiscal correction is going to take place.’


Trevor Greetham, director of asset allocation at Fidelity, said: “The ECB’s two long term liquidity injections do not solve the underlying solvency problems in the euro area but they could push the crisis back into remission for a while if they give economic growth a boost.'

Greetham, who moved to overweight equities and commodities this month, said the key question will be how long loose policy stance lasts among central banks - not just the ECB but worldwide.

'A premature curtailment of central bank liquidity, due to a rise in inflationary pressures or simply due to complacency, could lead to another downswing in global growth as we saw in 2011,' he added.

Meanwhile, Ethna Funds’ Luca Pesarini said: ‘I think for the moment it will be the last round of the LTRO but I think it is important to look closely at how much is replacement and how much is new money.'

‘At the end of the day, there is no other way, unless you print more money and more money and more money. At least [the LTRO] has saved our lives for the moment, we are still all alive.’


Richard Driver, currency market analyst at Caxton FX, said the announcement was broadly in line with consensus and brings the total amount issued under the LTRO scheme to over €1 trillion.

‘On the one hand, the large take-up suggests that liquidity will continue to improve and that eurozone institutions will be more robust moving forward. However, some might take it as a clear indication of on-going instability,’ said Driver.

Driver said the first LTRO had been a ‘major success’ but does not expect this second round to have the same impact of easing pressure in Italian and Spanish bond yields as it did in December.

Also, Driver said he was not discounting the potential of a third LTRO further down the line.


Speaking on Tuesday before the announcement, leading fund manager Thorsten Winkelmann said the second round of the LTRO is potentially more damaging than has been discussed so far.

‘There may be a negative aspect in that, traditionally, banks used the senior unsecured debt markets for their lending and this looks as if the market is drying up,’ he said. ‘And so what do we do three years down the line when the LTRO money goes and this market is dead?’

Winkelmann had previously said the measure, while offering a short term sentiment boost, did not tackle long-term structural difficulties. He also said it did not present him with a strong enough case to invest in European banks.