Its findings, claimed to be broadly consistent with that of Reuters, suggested that the most market neutral scenarios are either an additional 20 billion euros for 12 months, 30 billion euros for nine months or 40 billion euros for six months.
Citi analysis predicted any larger, and therefore “super-dovish,” extension could drive 10yr Bund yields back down by 25 basis points to around 0.20 percent. This would be close to the year-to-date lows.
Conversely, Citi claimed that any limited, and therefore “super-hawkish,” extension could push 10yr Bund yields back up by close to 25 basis points to 0.70 percent. This level has not been seen since 2015.
Citi concluded that the neutral level of quantitative easing (QE) that the ECB could introduce while maintaining market calm was around 250 billion euros. Despite the findings, the research team at Citi believes the central bank will extend by a total of just 150 billion euros and will not specify a monthly purchase rate.
This would lead to a near term sell-off of 10-year bunds corresponding to a 15 to 20 basis point rise in the yield on the sovereign paper.
The bank added that the size of the purchases would provide a signal to investors on whether QE is most likely to come to a hard-stop or be open to continuation.
“For example, 20 billion euros per month would imply that QE could immediately end once the extension is complete. In contrast, 40 billion euros per month is far more likely to require a further taper,” read the note.
Draghi’s press conference, which will immediately follow the ECB governing council meeting on October 26, will screen live on CNBC International.