https://sg.finance.yahoo.com/news/ge...083615520.html
Talk of ECB action grows amid Europe growth worry.
Economist Kraemer said the comments mean that "the probability of broad-based bond purchases (QE) is rising." The ECB's governing council next meets Sept. 4.
Stock markets in eurozone countries rallied on Monday on the prospect of more stimulus, with the benchmark German and French indexes up over 1.4 percent.
In quantitative easing, a central bank creates new money and uses it to buy financial assets such as bonds. That pumps newly created money into the financial system. It can in theory increase the amount banks can lend, push up the prices of stocks and other assets, drive down interest rates, and increase inflation. The U.S. Federal Reserve, Bank of Japan and Bank of England have all used quantitative easing. But there are legal, political and practical hurdles to doing it in a multi-country currency union and so far the ECB has held off.
What is Bond?
A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. The Federal government, states, cities, corporations, and many other types of institutions sell bonds. Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, but all bonds require a repayment of principal. When an investor buys a bond, he/she becomes a creditor of the issuer. However, the buyer does not gain any kind of ownership rights to the issuer, unlike in the case of equities. On the hand, a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors). Bonds are often divided into different categories based on tax status, credit quality, issuer type, maturity and secured/unsecured (and there are several other ways to classify bonds as well). U.S. Treasury bonds are generally considered the safest unsecured bonds, since the possibility of the Treasury defaulting on payments is almost zero. The yield from a bond is made up of three components: coupon interest, capital gains and interest on interest (if a bond pays no coupon interest, the only yield will be capital gains). A bond might be sold at above or below par (the amount paid out at maturity), but the market price will approach par value as the bond approaches maturity. A riskier bond has to provide a higher payout to compensate for that additional risk. Some bonds are tax-exempt, and these are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax.
Read more: http://www.investorwords.com/521/bon...#ixzz3BPvzYvmg
Investopedia explains 'Quantitative Easing'
Typically, central banks target the supply of money by buying or selling government bonds. When the bank seeks to promote economic growth, it buys government bonds, which lowers short-term interest rates and increases the money supply. This strategy loses effectiveness when interest rates approach zero, forcing banks to try other strategies in order to stimulate the economy. QE targets commercial bank and private sector assets instead, and attempts to spur economic growth by encouraging banks to lend money. However, if the money supply increases too quickly, quantitative easing can lead to higher rates of inflation. This is due to the fact that there is still a fixed amount of goods for sale when more money is now available in the economy. Additionally, banks may decide to keep funds generated by quantitative easing in reserve rather than lending those funds to individuals and businesses.
No money, I print money than I sell my debt and buy my own debt. wow.....
http://www.cityam.com/1408962341/ecb...itative-easing
Is the ECB considering quantitative easing?
European markets are up this morning after European Central Bank (ECB) president Mario Draghi gave a doveish speech in Jackson Hole (Friday).
The ECB, Draghi implied, could be gearing up for more monetary stimulus, in order to address the ongoing stagnation in the Eurozone economy.
Inflation in the Eurozone has been perilously low of late, leading to comparisons with Japan's long-term economic stagnation.
The Eurozone's average rate of inflation over five years (but starting in five years) was down to 1.95 per cent - comparable to the dark days of the debt crisis.
Draghi said the ECB would "use all the available instruments needed to ensure price stability over the medium term."
Of course the big elephant in the room is the measure Draghi has been reluctant to unleash: quantitative easing. Whether QE is included under "all available instruments" is unclear, but the bond markets were responding to something.
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