The Feb 29 offering will tell the ECB and the market how tight the funding market is. Reuters has some insight:
Powerful members of the central bank’s 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last.
Others (perhaps PIIGS fin mins) are hoping the ECB will continue to offer cheap funds.
The LTRO is viewed as what saved the Eurozone in December and comments from Italy suggest they expected another leg down in periphery bond yields afterwards. There’s always a chance that doesn’t happen, even with a high take-up.
The theme for euro trading in the next 8 days will be the LTRO. Expect a massive move on the euro based on the results, even if the mechanics of the program are poorly understood.
