Bond investors’ stance on the ECB’s support for the callback


European Central Bank Update

Eurozone government bonds are showing signs that investors believe that the European Central Bank may begin to scale back its emergency bond purchase program as early as this month.

European Central Bank policymakers will be Highest inflation rate For more than a decade, data this week showed that in the Eurozone, consumer prices in August grew at an annual rate of 3%, far higher than the bank’s target of 2%. The outbreak of inflation has prompted some European Central Bank interest rate makers to suggest that the central bank’s debt purchases may be reduced earlier than previously expected.

Mohammed Kazmi, Portfolio Manager of Union Bancaire Privée, said: “We saw investors digest some of the reduced risks at the September meeting.” “So far, the market feels very much that they will continue to continue at the current rate until the end of the year. satisfy.”

The German 10-year bond yield, which is the benchmark for the entire Eurozone debt, rose to minus 0.36% on Wednesday morning, the highest level in more than a month, higher than the minus 0.5% two weeks ago, reflecting the decline in prices. This move has been accompanied by a rise in US bond yields, although the Eurozone sell-off has been faster in recent days.

Since the early stages of the Covid-19 crisis, the European Central Bank’s 185 million euro pandemic emergency purchase plan (PEPP) has boosted the region’s bond market and helped lock yields near historical lows, even if the government issued A record amount of debt was used to finance its response to the epidemic.

Unlike the United States, the “shrinkage” of the Eurozone is not expected to put the European Central Bank on the path of halting asset purchases altogether. On the contrary, analysts believe that European Central Bank President Christine Lagarde will outline plans in the coming months to strengthen his long-running quantitative easing program to replace PEPP.

“I think the European Central Bank will take mild reduction measures next week, emphasizing that the commitment to slow down the pace of PEPP does not mean tightening, and implies that if financing conditions tighten, it retains the flexibility to accelerate the pace, and that the policy will end PEPP next year. After that, it will maintain a high degree of easing,” said Allianz economist Katharina Utermöhl.

The most likely outcome is that the European Central Bank will point out that bond yields have fallen since its peak in May, saying that the decline in national borrowing costs has allowed it to cut PEPP purchases from the 80 billion euros per month that has been maintained since March. . But the central bank looks set to keep monthly purchases above 40 billion euros at the beginning of the year, when bond yields were even lower.

In the past week, some European Central Bank policymakers have been sending such signals. Chief economist Philip Lane (Philip Lane) talked about the possibility of “partial adjustments” in asset purchases, saying that the reduction in sovereign debt issuance starting next year may reduce the number of purchases by the European Central Bank. On Tuesday, European Central Bank Vice President Luis De Kindos said that as the economic outlook improves, “unconventional measures must be phased out”.

UBS interest rate strategist Rohan Khanna said that this means that the European Central Bank is unlikely to continue to buy the entire supply of new euro zone government bonds in 2022, as it has been since the beginning of the pandemic. “We think it’s likely [quantitative easing] Support for Eurozone government bonds is waning,” he said.

Despite this, Lagarde and her colleagues remain at any indication that the rate of return is accelerating, or that it is accelerating the increase in borrowing costs for weaker eurozone members such as Italy or Greece. In May, the Eurozone bond sell-off made the European Central Bank’s Frankfurt headquarters nervous, which helped prevent a slowdown in bond purchases.

This time, however, there are few signs that debt-laden countries are facing increasing pressure. The closely watched 10-year Italian and German borrowing costs spread only slightly widened to 1.08 percentage points from 1.01 percentage points in early August.

“I think there is room for further selling at the meeting next week,” UBP’s Kazmi said. “We are seeing a steady increase in yields, rather than more volatile volatility spreading to interest rate differentials. This is what really causes the ECB to worry about it.”

The decision is an early test of the new strategy announced by the European Central Bank in July.Central bank Raise inflation target Slightly 2%, and expressed its readiness to tolerate any moderate and temporary price growth overshoots, and at the same time promised to maintain a “strong and lasting” policy to achieve its goals.

Although the European Central Bank may raise its economic forecast next week, it is expected to maintain its forecast for the inflation rate to fall below the 2% inflation target in 2022 and 2023, which justifies the continued high level of monetary stimulus.



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