With the economy flagging again, policymakers at the ECB are likely to provide more support either at next week’s Governing Council meeting or, more likely, in December. We have pencilled in an increase in the PEPP envelope to €2 trillion, an extension of net purchases until at least mid-2022, and a further reduction in the interest rate charged on the TLTROs. All of this should help to drive peripheral bond spreads down even further. But it will do little to prevent a renewed economic downturn if governments continue to ramp up their coronavirus restrictions.
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