Deposit rate cut is almost a guarantee, when European Central Bank's (ECB) governing council meet on December 3rd, to take further measures in monetary policies.
Market is expecting a combination of moves, which is likely to include at least 10 basis points deposit rate cuts from current -0.2%, along with increase in asset purchase pace from current € 60 billion per month and to increase the purchasing horizon from current September, 2016.
Under the current purchase program, European Central Bank (ECB) is pursuing as per key capital contribution, which means Bundesbank need to execute largest share of around €10 billion per month. It will move up if the program size and pace is increased. Contrary to that supply of bond will not rise from German government and demand from investors are already quite high in both primary and secondary market.
Last German 2 year auction recorded record low yield of -0.38%.
As of current purchase program ECB and regional central banks won't buy below deposit rates, which means Bundesbank is not able to buy up to four years.
While Bundesbank will be able to execute the program, but that would mean increased duration of the portfolio.
So if ECB's balance sheet may remain elevated for more than a decade.


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