The ECB is expected to announce government bond purchases at the meeting in January as both of its two contingencies for further easing have been triggered.
We expect a bond purchase programme of EUR750bn running until September 2016 and this should be positive for the market.
The pace of purchases is in our view most important for the market reaction, as the aggregate size is likely to be altered along the way anyway.
The government bond purchases are set to be conducted according to the ECB's capital key and bonds being purchased should have an investment grade rating.
We expect the ECB to include longer dated bonds, at least to the 15Y and purchases are likely to be even longer.
The financial risk potentially associated with the purchases will, in our view, be pooled ECB-wide, while the bonds should be pari passu to other investors.
An open-ended programme would have been more positive but it would most likely not be within the legal limitations of the German Constitutional Court.
In our upcoming paper to be published tomorrow, we will look at the market reaction and the macro economic impact of the expected QE programme.
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