Pimco Joins BlackRock Bond Manager Predicting ECB Will Expand QE 

Money managers from BlackRock Inc. and Pacific Investment Management Co. said Thursday that the ECB’s debt-purchase plan is likely to be expanded as the outlook for inflation crumbles. That’s a potential boon for the government securities they own.

ECB President Mario Draghi said this week more time is needed to judge whether further monetary stimulus is required.

“In our internal analysis we probably have now a more than 50 percent probability that we will not just continue as we are and then stop in September 2016,” Michael Krautzberger, head of euro fixed income at BlackRock, said at briefing in London on Thursday. “There’s a good chance they might intensify it, either by pushing the target date further out, by slightly raising the monthly amount, or even by widening the net.”

Draghi sought to play down the chances of an imminent expansion this week, telling the European Parliament in Brussels that the central bank’s quantitative easing “has sufficient built-in flexibility.” The institution tweaked its current plan on Sept. 3 by raising the share of bonds it can buy to 33 percent of each issue from 25 percent, and Draghi told reporters stimulus would continue until the end of September 2016 “or beyond, if necessary.”

The ECB also cut its consumer-price forecasts through 2017, noting that there were “downside risks” to these projections.

Inflation Risks

“We share the ECB Governing Council’s view that the risks to this forecast are to the downside,” Andrew Bosomworth, Pimco’s head of money management for Germany, said in the firm’s cyclical outlook for September, published on Thursday. “As a consequence, we think monetary policy may have to become more stimulative.” The ECB may boost its monthly purchases by 10 billion euros ($11 billion) to 70 billion euros per month, or extend it into 2017, he said.

The euro area’s five-year, five-year forward inflation swap rate, a market metric identified by Draghi as a benchmark for the inflation outlook, was at 1.62 percent as of 4:34 p.m. London time, down from as high as 1.86 percent in July. The yield on German 10-year government bonds were little changed at 0.59 percent.

“Inflation expectations are very, very low, quite a bit away from where the ECB would like them to be,” BlackRock’s Krautzberger said. “That explains why the ECB is quite concerned.”