Full-bodied sell-off on BTPs on the day of the ECB with Lagarde’s words that did not have the desired effect of staving off expectations of a rate hike. The yield of the ten-year BTP went up to 1.04%, on a 5-month high. The BTP-Bund spread has widened sharply, reaching 120 bps, again on the highest levels since May.
On the interest rate front, the ECB president, Christine Lagarde, reiterated that market expectations (a first increase in 2022) are not in line with the guidance, which refers to responses on rates especially if inflation remains above the target at end of the reference period, generally three years. “Lagarde has tried to soften the growing expectations of a rate hike next year, emphasizing the fact that it is not in line with the criteria identified in the recently revised guidance, as also stated by the chief economist Lane”, comments Antonio Cesarano, Chief Global Strategist of Intermonte. However, operators are persisting with the view of a possible rate hike by the end of 2022, as signaled by the spread on futures on Euribor rates December 21 / December 22. “Overall, the ECB is currently confirmed as one of the most dovish central banks, which is not appears willing to use the weapon of the rate hike, preparing instead to reshape its monetary policy armamentarium in the meeting on December 16 “, adds Cesarano.