One aspect of the deposit rate cut is largely being overlooked

Much has been said about the deposit rate cut. There's plenty been said about the possible shortage of bonds the ECB can buy

Adam's just highlighted the yield in German 2's falling to a record low of -0.438%. This is well below the ECB's threshold, defined by the deposit rate

Rabobank report that there are now over €600bn of Eurozone bonds that are now ineligible, or around 12% of the market of some €5tn. That doesn't sound a lot but it's the short end that's drying up which will force the ECB to go longer, something they're not overly keen to do

That is unless they bring those bonds back into the shopping basket by way of lowering the deposit rate and therefore the threshold

The moves we're seeing in shorter end yields is probably due to a lot of front running. We saw similar moves when they announced the QE program and that looks to be the case now. The pain will come if the deposit rate doesn't get lowered enough to cover some of these moves. German 2's need the deposit rate cut to -0.50% now (or -0.45% if they're going in half pips). That's pushing the higher range of expectations for a cut

If the ECB doesn't cut the rate, or doesn't cut by as much as expected, then all these front runners will be left out in the cold

Here's how 2's and 5's look now

Who's in and who's out

There's still some big boys left in there like Spain and Italy but other smaller nations won't have as much available compared to how much the ECB buy a month, or may increase purchases to

Alongside whatever happens in FX we need to keep one eye on bonds too. If there's a rush to get out the exit door then that money is going to go looking elsewhere and could well go looking for better yields. Countries like Australia will benefit and so will its currency at the expense of the euro

The range of reactions are very broad for today. There's so much that could happen and it's going to be dangerous. Don't get sucked in to the initial news as remember also that we have a 45 minute gap between what happens to rates and what may happen to QE