ECB QE not priced in: BofA Merrill Lynch

Quotes from  BofA Merrill Lynch:

- We have been arguing for a while that ECB QE is not priced in. 2Y1Y EONIA is trading at only around -3bp (wetarget -15bp). The periphery remains wider than on the day of the actual ECB announcement, and compared to the move in Bund yields has actually cheapened (we target 80bp in 10y Bund-BTP spreads). 

- Bund ASW remain cheap, in our view, given the likely scarcity of physical cash assets once QE is actually in full swing (we target -45bp). Finally, breakevens have actually cheapened since 22 January.  

- As we approach the actual launch of QE market is not pricing in the likely relative value distortions that QE will generate. We like SPGB Apr-17/Oct17 vs SPGB Jan-17, and RFGB Sep17 vs RFGB Apr16. We see value in IRISH Oct17 and 7y-9y sectors vsIRISH Jun19. We like DBR Aug-24 vs DBR Feb-24, and FRTR Oct-25 vs FRTR May-25.